JS Securities Limited – JS Research (09 June 2023)

Karachi, June 09, 2023 (PPI-OT): Budget FY24: Corporate Pakistan burdened with paving the path to IMF?

Federal Budget FY24 comes in the backdrop of the government reiterating its commitment to securing an IMF program, while highlighting that government had shunned election considerations and announced a responsible budget.

The base case plan appears to pin burden of revenues on Corporate Pakistan - Higher super tax, hefty retrospective tax on 'extra ordinary earnings', tax on bonus shares. Modalities of some are likely to face legal challenges.

Within beneficiaries, Construction sector appears to have received the most support (banks incentivized with lower tax rates for lending to the sector, advance tax on overseas Pakistanis investing in immovable properties abolished and REIT incentives extended). SMEs, IT and Agri are also on the list of beneficiaries.

With FY23 posting fiscal deficit at 7% of GDP, budgeted deficit at 6.5% of GDP for FY24 does not, prima facie, seem overly ambitious. Having said that, some budgeted line items will test the execution capability of government.

42% YoY increase in Provincial surpluses in an election year, raising US$1.5bn from Sukuk / Euro bonds and 28% increase in tax collection will be closely tracked to look for slippages and need for likely interim tax measures.

From PSX standpoint (barring the reduction in turnover tax from 1.25% to 1.0%), most measures tilt towards the negative and could emanate a negative reaction.

The key variable shaping medium term sentiments however is likely to be any indication of IMF response to budget and whether FM's indication of securing the 9th review within June comes true.