- The government is about to release a massive budget of 13 to 15 trillion rupees.
The coalition government in Pakistan is preparing to present a substantial budget for the fiscal year 2023-24, estimated to be between Rs13-15 trillion. Despite challenges such as high interest rates and an uncertain economic landscape, the government aims to set ambitious revenue targets to address the funding gap and stimulate economic growth.
Economic Challenges and Revenue Targets
The government is expected to set a target of Rs9-9.2 trillion for the fiscal year 2023-24, reflecting a 21% increase compared to the current fiscal year. This tax target is 29% higher than the expected tax collection in the outgoing fiscal year. However, it is important to note that revenue targets have historically varied by an average of 8% from actual figures over the past five years, suggesting a possibility of similar discrepancies in the upcoming fiscal year.
Uncertainties and Nervousness in the Market
Given the prevailing stagflation and uncertainties surrounding the upcoming elections, there is apprehension about how Pakistan will bridge its external account funding gap. The uncertainty regarding financing the US dollar funding gap has created nervousness in the currency, bond, and stock markets. This uncertainty poses a significant challenge for the government in formulating the budget and addressing the economic crisis effectively.
Taxation Measures and Non-tax Revenue
To meet the revenue targets, the government is predicted to introduce several taxation measures. These may include taxation on undistributed reserves, the continuation of super tax, a shift from the final tax regime to the minimum tax regime, asset/wealth tax, higher tax on non-filers, tax on rental income, and taxes on banks, tobacco, and beverages.
Development Spending and Fiscal Constraints
The Federal Public Sector Development Programme (PSDP) is projected to allocate Rs0.9 trillion for FY24, which might face significant cuts due to fiscal constraints. The consolidated PSDP (federal and provincial) is expected to reach Rs2.6 trillion (2.5% of GDP) in FY24. These allocations will play a crucial role in determining the level of economic development and infrastructure improvement in the country.
Political Implications and IMF Programs
With the Pakistan Tehreek-e-Insaf (PTI) party facing challenges, there is a possibility of a weak coalition government coming to power in the upcoming elections. The competence and aggressiveness of this new setup in addressing the economic crisis will be pivotal. Additionally, the government may face difficulty in completing the current International Monetary Fund (IMF) program on time and might need to enter into another, potentially larger, IMF program.
Budget’s Impact on Different Sectors
The upcoming budget is expected to have a neutral to positive impact on the stock market. Sectors such as oil and gas exploration, chemicals, pharmaceuticals, consumers, tobacco, technology and communication, textile, cement, fertilizers, and oil marketing companies may experience a neutral effect. However, the budget may have a neutral to negative impact on banks and autos, while steel and independent power producers could potentially benefit from it.
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The government’s plan to present a Rs13-15 trillion budget for the fiscal year 2023-24 reflects its efforts to stimulate economic growth and address the funding gap. Despite the challenges posed by high interest rates, uncertainties related to upcoming elections, and the need to bridge the external account funding gap, the government aims to set ambitious revenue targets. However, it is crucial for the government to implement
