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Pakistan Economy_GoP close to securing IMF deal, (AKD Daily, Jun 22, 2022)

GoP close to securing IMF deal

In a welcome breakthrough, Pakistan and IMF reached an understanding on Federal
Budget FY23 which is likely lead to revival of the Extended Fund Facility (EFF) after authorities
committed to generate PkR436bn in more taxes, largely by increasing petroleum
levy up to PkR50/ltr.
 The total tax collection target has been revised upwards by PkR436bn to PkR7.4trn where
the contribution of indirect taxes in the total tax collection will continue to top 60% mark.
FBR is banking on higher inflation (FBR target: 12.8% vs AKD estimates: 13.5%) to achieve
this target. However, due to likely slower economic activity and lower imports, we may
see some slippages.
 Under pressure from IMF, GoP has also tweaked Personal Income Tax (PIT) brackets
where the tax cuts granted in the budget to mid and high income salaried classes will
likely be reversed. However, the GoP has protected the lower classes from tax burden by
increasing the tax exemption to PKR1.2mn per annum.
 With Pakistan facing daunting task of managing international debt maturities, revival of
the IMF program and potential white listing from FATF will help country roll over the
maturing debt. GoP is also weighing raising additional US$1.0bn through a new international
Sukuk offering, once the IMF deal is signed.
 Global oil prices have started to ease-off of late which is a positive news for the country.
To this end, the WTI index has fallen by 19% since its recent high. Provided the currency
gains stability, falling oil prices will allow the GoP to meet its PDL collection target without
creating further inflationary pressures.
 Market will likely cheer the development and we may see the index rallying in the short
term. However, the positive sentiments are unlikely to sustain as the formidable economic
challenges remain despite signing IMF’s deal. With inflation raging amid unwinding of
fuel subsidies, we may see interest rates rising further which will may potentially create
headwinds in the short term.