According to Intermarket Securities, there is relief -
albeit minor - for the salaried class and small/ medium corporates, while non-tax
filers will face severe impediments in purchasing property and 4-wheelers, as well
as retaining bank accounts.
Retailers are being focused on too, with e-commerce/ online
marketplaces being formally brought into the tax net, and there is a push for
improving domestic productivity with the reduction of custom duties on multiple
lines.
Discipline under the IMF program has continued to sustain.
Instead of stepping the foot on the growth accelerator too quickly (the FY26
GDP growth target is a modest 4.2%), the Budget focuses on increasing tax to
GDP and curtailing current expenditure.
The projected fiscal deficit of 3.9% of GDP may ultimately prove
to be too ambitious (in part because of an optimistic non-tax revenue target),
but Pakistan should still deliver its 3rd straight primary surplus - which
should hold more importance for the IMF.
Moreover, despite risks to the headline fiscal deficit, the
projected development expenditure for once does not appear to be completely out
of reach.
The stock market is anticipated to react positively to the
Budget. There has been no change to the tax rate on dividends and capital
gains, which remains at 15%. This is now more favorable as compared to fixed
income investments, WHT on profit on debt has been raised to 20%. Domestic
liquidity is expected to continue to gravitate towards equities.
Stabilization
achieved in FY25
The economy stabilized in FY25, evidenced by inflation
coming off sharply, the current account swinging into surplus (a rarity in
Pakistan), and the buildup in foreign exchange reserves.
GDP growth was modest in FY25, on weak agriculture dynamics
and anemic industrial growth. A low base should help agriculture rebound in
FY26 while manufacturing should benefit from lower interest rates.
The government aims moderate and more sustainable economic
growth in Pakistan, backed by a modest current account deficit. This discipline
is important to avoid the frequent balance of payment crises of the last 15 years.
Pakistan estimates a fiscal deficit of 3.9% of GDP in FY26
as against 5.6% in FY25. This improvement is premised on a broadening of the
tax net and discipline on current expenditure.
While the headline fiscal deficit appears ambitious (SBP
profits may fall due to lower interest rates), Pakistan should post its 3rd
straight primary surplus in FY26. Importantly, the primary balance should remain
in surplus.
CPI projections appear realistic, with inflation expected to
converge towards the long-term mean. However, this likely dampens prospects for
large cuts in the interest rates, which has already halved from an all-time
high of 22% last year to 11% at present.
