Budget Takes Pakistan One Step Closer to Sealing New IMF Program: Brokerage House

Brokerage house Topline Securities Thursday said that the federal budget for FY25 will likely pave the way for a new International Monetary Fund (IMF) program. Topline said in its report that the tax measures taken under this budget are quite balanced and less inflationary than expectations, as earlier it was considered that the government would increase GST by 1 percent etc. The brokerage house said that it believes that these measures will pave the way for the IMF program if approved by the parliament. The report highlighted that the Federal Board of Revenue (FBR) tax revenue target has been set at Rs. 12.97 trillion, up 40 percent from the estimated collection of Rs. 9.25 trillion in FY24. This is higher than the FY24E growth of 29 percent and the average growth of 20 percent in the last five years. The brokerage house noted that although the target is high, it believes the government can collect around Rs. 12.4-12.7 trillion based on the new tax measures. The remaining gap can be filled through either imposing additional taxes like a further increase in PDL during the middle of the fiscal year (i.e. January 2025) etc. or by reducing expenditures like development spending and/or subsidies/grants etc. The government has a primary surplus target of Rs. 2.5 trillion (2.0 percent of GDP) for FY25 against estimated surplus of 0.4 percent in FY24. IMF estimates a primary surplus of 0.4 percent of GDP for FY25 in its May 2024 report. Excluding provincial surplus, the primary surplus would be 1 percent of GDP for FY25 and a deficit of 0.13 percent for FY24E. Topline said it believes the government will achieve its primary surplus target as any shortfall to the extent of Rs. 300-500 billion, can be managed through cost rationalization i.e. cut in development and/or other current expenses like subsidy, etc., or further increase in taxes by mid of next fiscal year.