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Arab News
22-05-2025
- Business
- Arab News
Pakistan FY26 budget to continue fiscal consolidation, focus on IMF guidelines — analysis
KARACHI: Pakistan will continue fiscal consolidation, focus on IMF guidelines and bring untaxed and low tax areas into the tax net as it announces its federal budget for fiscal year 2025-26 next month, a top Pakistani brokerage house said in a budget review. Islamabad is currently holding budget talks with the IMF, which earlier this month approved a loan program review for Pakistan, unlocking a $1 billion payment which the State Bank of Pakistan said had been received. A fresh $1.4 billion loan was also approved under the IMF's climate resilience fund. 'We expect this budget to continue fiscal consolidation, focus on IMF guidelines and bring untaxed/low tax areas in tax net,' Topline Securities said in a budget review. The brokerage house said the government had committed with the IMF to continue with fiscal consolidation in the FY26 budget to ensure debt sustainability. 'The government targets primary surplus of 1.6 percent of GDP (vs. 2.0-2.1 percent of GDP in FY25), a surplus for the third consecutive year after two decades. The government has also committed to use any windfall dividend expected from the central bank over and above 1 percent of GDP to retire debt,' the review said. The analysis predicted the Federal Board of Revenue's FY26 tax revenue growth target could be the lowest in six years. 'FBR revenue target is expected at Rs14.1-14.3 trillion, up 16-18 percent YoY, which will be the lowest percent growth in the last 6 years,' it said. The FBR has achieved a five-year revenue Compound Annual Growth Rate of 25 percent from FY21-25. 'We believe, out of this required 16-18 percent growth, approximately 12 percent would be achieved through autonomous growth driven by real GDP growth of 3.6 percent and inflation of 7.7 percent. The remaining 4-5 percent growth translates into additional tax measures of Rs500-600 billion,' the analysis estimated. Revenue measures expected include a change in the GST calculation price of sugar, the likely introduction of taxes on pension, retailers and wholesalers and a likely increase in federal excise duty on cigarettes, fertilizer products and pesticides by 500bps. A tax on the income of freelancers, vloggers and YouTubers is also expected. 'Government is expected to announce some relief measures namely (1) extension in exemption limit on salary or reduction of tax rate by 2.5 percent for all salary brackets, (2) rationalization of duties on trade, (3) likely housing finance subsidy, (4) inflation adjustment in minimum salary and unconditional cash transfer, and (5) some rationalization in super tax,' the analysis said. It said the government would reportedly set a GDP growth target of 3.5-4.5 percent 'while we expect GDP growth target for FY26 at 3.5-4.0 percent led by services.' The analysis predicted the budget was likely to be neutral for the stock market in the short-term, neutral to positive for cement, steel, oil and gas, consumers, and independent power producers, and neutral for oil marketing firms, IT, banks, pharma, autos and textile. Pakistan's 37-month $7 billion IMF loan program, approved on Sept. 25, 2024, aims to build resilience and enable sustainable growth. Key priorities include entrenching macroeconomic sustainability through implementation of sound macro policies, including rebuilding international reserve buffers and broadening of the tax base; advancing reforms to strengthen competition and raise productivity and competitiveness; reforming state-owned enterprises and improving public service provision and energy sector viability; and building climate resilience. Highlighting progress in Pakistani policies to stabilize the economy, the IMF said earlier this month when it approved the latest tranche that Pakistan's fiscal performance had been strong, with a primary surplus of 2.0 percent of GDP achieved in the first half of FY25, keeping Pakistan on track to meet the end-FY25 target of 2.1 percent of GDP. 'Inflation fell to a historic low of 0.3 percent in April, and progress on disinflation and steadier domestic and external conditions, have allowed the State Bank of Pakistan to cut the policy rate by a total of 1100 bps since June 2025,' the IMF added. 'Gross reserves stood at $10.3 billion at end-April, up from $9.4 billion in August 2024, and are projected to reach $13.9 billion by end-June 2025 and continue to be rebuilt over the medium term.'
Arab News
21-05-2025
- Business
- Arab News
Pakistan says open to talks with India after IMF flags tensions as loan risk
KARACHI: Pakistan on Tuesday hinted that it was open to 'constructive diplomatic and economic engagement' with India as the International Monetary Fund (IMF) said prevailing tensions between the two archfoes had increased enterprise risks to Islamabad's ongoing loan program. The development comes days after Indian Defense Minister Rajnath Singh said the IMF should reconsider a $1 billion loan to Pakistan alleging it was 'funding terror,' a move denounced by Islamabad as proof of New Delhi's desperation. India and Pakistan this month clashed in the worst military violence in decades, killing around 70 people before agreeing a ceasefire on May 10. The conflict was sparked by an attack on tourists in Indian-administered Kashmir that New Delhi blamed on Islamabad, a charge it denies. Khurram Schehzad, adviser to Pakistan's finance minister, said the Washington-based lender had not imposed any new 'conditions' on Pakistan, which continues to pursue stability and responsible governance that supports long-term growth for itself and the region alike. 'Constructive diplomatic and economic engagement in the region, including with neighbors, remains essential,' Schehzad told Arab News, when asked about the recent developments on the fiscal front. The IMF last week approved a loan program review for Pakistan, unlocking a $1 billion payment which the State Bank of Pakistan said had been received. A fresh $1.4 billion loan was also approved under the IMF's climate resilience fund. But the lender last week said the rising India-Pakistan tensions, if sustained or deteriorated further, could heighten enterprise risks to the fiscal, external and reform goals of its $7 billion ongoing loan program for cash-strapped Pakistan. The IMF loan is vital for Pakistan which is trying to revive its debt-ridden economy that is expected to expand 2.68 percent by June, about one percent lower than the government's earlier projection. 'Yes, the IMF report identifies regional tensions as a potential risk, as is customary in such assessments,' Schehzad said, adding that at the same time, the Fund had noted that Pakistan's stocks market had reacted to the conflict modestly and retained most of its recent gains. 'We view this as a reflection of investor confidence in Pakistan's macroeconomic path.' Pakistan's stocks, which rose more than 80 percent last year, have largely resisted selling pressures in recent weeks, despite the country's conflict with India that saw the two sides strike each other with missiles, drones and artillery. Schehzad rejected the impression that Pakistan had increased its defense budget and said it remained constant at 1.9 percent of the gross domestic product this fiscal year starting in June 2024. 'The Rs2.414 trillion defense budget cited in the IMF's staff report is an absolute projection,' he said. After debt servicing, defense spending is the second biggest drain on Pakistan's revenues that the country is trying to improve by withdrawing energy subsidies and taxing incomes from agriculture, retail and real estate sectors as one of the conditions set by the IMF under its 37-month Extended Fund Facility (EFF) secured in September. BUDGET DISCUSSIONS An IMF team is currently discussing with Pakistan the upcoming federal budget that the country is expected to unveil early next month, said IMF officials privy to the discussions, requesting anonymity as they were not authorized to speak to media. The talks are expected to conclude 'this week' after which the IMF would issue a concluding statement, they told Arab News, without explaining what exactly the two sides were discussing. The IMF's latest country report, issued last week, mentioned certain structural benchmarks for Pakistan's economic reform program that Schehzad said represented the natural progression of the measures already agreed upon, when Pakistan signed the Memorandum for Economic and Financial Policies (MEFP) in September. 'There are not newly introduced conditions. Each step builds logically on the foundations laid in earlier phases of the program,' he said, adding that each structural benchmark the IMF's report mentioned was part of a sequenced approach to reforms that was designed in phases and built upon progress achieved in the country's earlier reviews. Pakistan on May 9 secured the IMF board's nod for its first review that saw the release of about $1 billion to the cash-strapped country and the approval of the country's request for a 28-month, $1.4 billion Resilience and Sustainability Facility (RSF) to cope with environmental vulnerabilities. 'These benchmarks are not surprises. They are deliberate follow-ons to earlier milestones,' Schehzad said, citing Pakistan's parliamentary approval of the next budget in line with the IMF staff agreement as a second step toward the country's goal of achieving a primary surplus of 2 percent of GDP by FY27. 'The first step was the FY25 budget [presented in June last year], which targeted a 1.0 percent surplus.' Terming several other IMF structural benchmarks as a continuation of what has been agreed upon with the lender, Schehzad said some new benchmarks were introduced in response to recent developments. 'The plan to publish a post-2027 financial sector strategy and the move to remove the cap on the debt service surcharge are based on new realities, including the recent constitutional amendment and the government's evolving energy sector reform strategy,' he said. Other reforms, according to the adviser, included phasing out incentives in Pakistan's special technology zones and industrial parks by 2035 to ensure a level-playing field, and lifting a ban on the import of used cars to reduce trade barriers was consistent with the trade liberalization goals outlined in the September 2024 MEFP. The finance adviser confirmed that the remaining 13 actions fall under the separate climate resilience-focused facility, RSF, that were approved by the IMF's executive board. 'These measures reflect Pakistan's steady and sovereign commitment to economic reform and transparency, not externally imposed demands,' he said.
Reuters
20-05-2025
- Business
- Reuters
Pakistan posts 2.4% growth in third quarter of fiscal year
KARACHI, May 20 (Reuters) - Pakistan's economy grew 2.4% in the third quarter of the fiscal year that ends in June, the national accounts committee said on Tuesday, while revising up growth prospects for the current fiscal year. In a statement the committee approved a projection of 2.68% provisional growth in GDP during FY 2024/25, taking the size of Pakistan's economy to $410.96 billion. This month Pakistan's central bank cut its key policy rate by 100 basis points to 11%, citing an improved inflation outlook and resuming a series of cuts from a record high of 22%, following a brief pause in March, to support growth. The latest national accounts aggregates for fiscal 2024/25 showed the size of the economy at 114.7 trillion rupees ($410.96 billion) up from 105.1 trillion rupees ($ 371.66 billion), the committee said. Growth in the agriculture sector was 1.18% in Q3, despite a decline in important crops, while industry contracted 1.14%, hit by negative growth in mining and quarrying and large-scale manufacturing. The committee also approved Pakistan's revised GDP growth at 1.37% in the first quarter and 1.53% in the second. Pakistan's manufacturing sector growth slowed to a seven-month low in April, with the HBL Pakistan Manufacturing Purchasing Managers' Index (PMI) easing to 51.9 from 52.7 in March, weighed by concerns over global trade.
Reuters
14-05-2025
- Business
- Reuters
Pakistan receives second tranche under extended fund facility from IMF, cenbank says
NEW DELHI, May 14 (Reuters) - Pakistan has received the second tranche of special drawing rights worth 760 million ($1,023 million) from the International Monetary Fund under the extended fund facility programme, the country's central bank said in a post on X on Wednesday. The amount will be reflected in its foreign exchange reserves for the week ending May 16, the State Bank of Pakistan said.
