Facing massive political pressure, the government could take steps “to appease the public” in the upcoming budget scheduled to be presented on June 9, said a brokerage house on Saturday.
“(It) could take steps to appease the public in the upcoming budget through some sort of expansionary policies including direct cash subsidies for the underprivileged and increase in minimum wages,” said Topline Securities, in a report titled ‘Pakistan Federal Budget FY24 - Proposals & their impact’ on Saturday.
“(However,) any excessive spending would be ill-advised without substantial tax collection measures,” it said.
Meanwhile, with time running out and the resumption of the International Monetary Fund (IMF) remaining uncertain, it believed the government will be unable to complete the programme on time.
“The government is expected to announce Federal Budget FY24 on June 9, 2023. It now seems unlikely that the government will be able to complete the current IMF programme on time,” said Topline.
“We believe that regardless of the status of the current IMF programme, Pakistan will have to enter another and bigger IMF facility,” said the brokerage house.
Pakistan’s bailout programme with the IMF has been stalled at the ninth review, while talks on the staff-level agreement have dragged on over securing necessary financing assurances to bridge the balance of payments gap.
Meanwhile, the incumbent government is expected to present a budget for next year “amid stagflation and lot of uncertainties related to upcoming elections and how Pakistan will bridge its external account funding gap,” said Topline Securities.
This report said the uncertainty on financing the external funding gap is creating nervousness in currency, bond and stock markets.
“Pakistan stocks at PE of 3x and US dollar bonds with YTM (yield to maturity) of 25-103% shows a high probability of a default,” it said.
On the upcoming budget, the report was of the view that the government in its bid to create good optics may set “an unrealistic revenue target to create space for spending in the budget”.
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The brokerage house estimated a budget outlay for FY24 at Rs13-15 trillion as against Rs9.6 trillion proposed for FY23 assuming record high mark up cost due to high interest rate.
“Government is likely to set tax revenue collection target of Rs9-9.2trn for FY24 (8.6% of GDP), which is up 21% from the target of Rs7.5trn for FY23 and 29% higher than expected tax collection in FY23.
“Non-tax revenue target for FY24 is estimated at Rs2.5trn (2.4% of GDP) as against Rs1.6trn (2% of GDP) estimated for FY23. This seems achievable given higher SBP profit share and a significant jump in PDL (Petroleum Development Levy),” it said.
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Topline was of the view that the budget was likely to be “neutral to positive” for stock market. “We don’t expect major steps in budget that can affect the market and key listed sectors,” it said.
Moreover, market participants are more keen to see political stability in the country and clarity on the new IMF programme and other dollar inflows, it said.
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