Relaunch of the IMF program in sight: the budget includes measures to promote fiscal austerity and stabilization: experts – Business & Finance

KARACHI: Pakistan is considering reviving an IMF program and the next budget is likely to contain measures promoting fiscal austerity and stabilization, experts have said.

It is likely to impose new fiscal measures of Rs 400-450 billion in the FY23 budget, they added.

The government is expected to announce the federal budget for the financial year 2022-23 (FY23) on June 10, 2022. Budget expenditure for FY23 is estimated at Rs 9-9.5 trillion (11.5%-12% of GDP) from to the budget of 8.5 trillion rupees (12.7% of GDP) for FY22.

“The government is likely to set a tax revenue collection target of 7.25 trillion rupees for FY23 (9.2% of GDP), an increase of 19% from the revised target of 6 .1 trillion rupees (9% of GDP) for FY22,” a Topline Securities research report said. It is likely to impose new fiscal measures of Rs 400-450 billion in the FY23 budget, he added.

The current spending target is expected to be set at 12% of GDP in FY23 or Rs 8 trillion, about 11% more than budgeted in FY22. Similarly, the government is likely to set aside 3.5-3.9 trillion rupees (4.5-5.0% of GDP) for the surcharge payment for the FY23 and FY1.6 budget. trillion rupees are likely to be set aside for defense spending, which accounts for 2.1% of GDP, the report said.

For FY23, Federal Public Sector Development (PSDP) is budgeted at 800 billion rupees against 466 billion rupees disbursed in the first 10 months of FY22 and a revised budgeted amount of 603 billion rupees for FY22 Consolidated PSDP (federal and provincial) is expected to reach Rs 1.4 trillion (1.8% of GDP) in FY23 from Rs 1.2 trillion in FY22 22, according to the report.

According to the research report, few of the tax measures being considered include raising the super tax for the banking sector and reimposing the super tax on highly profitable businesses; increase in the tax rate for high earners; the reduction of tax benefits and exemptions for various sectors; increased statutory duties on luxury items; luxury tax on real estate and vehicles, and tax increases for non-filers.

With the economic downturn, the tax revenue target of Rs 7.25 trillion will be difficult to achieve in FY23, according to the report. However, this will depend on the amount of new taxes to be imposed in the FY23 budget.

“The upcoming budget will likely be neutral for the stock market as we expect no change to the 12.5% ​​capital gains tax (CGT) rate and the 15% tax rate on dividend income,” the report said, adding that the budget is likely to be neutral to positive for sectors such as technology and communication, fertilizers, insurance and chemicals. On the other hand, it is likely to be neutral to negative for sectors such as IPPs, automotive, banking, oil and gas exploration, cement, textiles, OMC, tobacco, steel and pharmaceuticals.

“We believe that the negative aspects associated with the imposition of new taxes on the listed sector are already priced in as valuations remain cheap,” the report said. Market participants want to see the overall balance of payments situation and are focusing on the IMF and other dollar inflows as well as the trend of international commodity prices, he added.

The Pakistani market is currently trading at a 2022 PE of 4x against an average PE of 7x over the last 5 years.

Copyright Business Recorder, 2022

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