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Pre-Budget FY10: Structural Reforms Led Budget

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The budget 2009-10 is expected to deliberate on Pakistan’s long-standing structural issues, led by IMF’s tough performance and qualitative criteria. This includes elimination of electricity subsidy, resolution of circular debt, tax administration & policy action plan (including merger of income & sales tax department, carbon tax & introduction of VAT) and lastly, formation & activation of single treasury accounts.

What has changed from last year?

Unlike the outgoing fiscal year, the GoP’s ability to finance budget deficit will be better placed, driven by commitments from Friends of Pakistan and IFIs. Resultantly, the financing mix will shift from domestic sources to external. This should take the pressure off bank borrowing.

The subsidies on fuel and electricity will be eliminated. GoP had budgeted Rs295bn worth subsidies for FY09, which is likely to decline in FY10. However, subsidy to agriculture sector is expected to continue even in FY10.

Higher Public Sector Development Program (PSDP). Recent IMF approval for counter-cyclical policies to accommodate the recent external flows commitment will stimulate the PSDP allocation for next fiscal year. In FY09, GoP has slashed its development budget massively, due to constraint financing options.

Pro-market budget on the cards

Advisor to PM on Finance Shaukat Tarin has called next budget as - pro-growth, poor and markets. We also view the next budget as positive, even in the presence of IMF’s looming tax threat. The reasons why we are positive are as follows:




Tax on real estate, services, gross assets likely

As this budget will be supervised by IMF, we revisited IMF notes and extracted the key highlights and recommendations regarding taxes, which are as follows:



Market outlook

We are positive on the market, however, sector wise we expect OMC’s and Cements to stage a strong recovery. The budget FY10 is likely to be a non-event for E&Ps, Power, Oil & Gas Marketing and Financial sector. However, it is likely to carry good news for Cements, Autos, and Fertilizer sector.

Our top picks are POL, OGDC, PPL, FFC, PTC, PSO and Hubco. Additionally, on the back of our interest rate outlook we also advise investors’ to keep a track on high quality leveraged plays like DGKC, Lucky & ENGRO.


Report by JS Research

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posted @ 10:14 AM,

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