Government to present budget 2019-20 on IMF terms and condition

KARACHI: The government of Prime Minister Imran Khan will most likely present fiscal year budget 2019-20 on the terms and conditions of IMF to bring the economy back on the right track and will likely focus on fiscal discipline.

“The upcoming budget will not bring any major excitement for the stock market,” Topline Brokerage House said in its report. Rather it will be negative, especially for cyclical sectors (Cement & Steel), Fertilizer and Chemical if key measures like continuation of corporate tax rate at 29 per cent, re-imposition of super tax for non-financial companies, increase in excise, GST and turnover taxes among others are implemented, it added.

Higher tax revenues of 3.5 per cent of GDP (to the tune of Rs 1.4-1.5tn) would be key highlights of the budget. However, the government may not be able to achieve the budgeted revenue targets given continued economic slowdown.

The report said that in order to bring the fiscal deficit to 5.5-6.0 per cent, the government will likely cut development expenditure to Rs 1.2tn-1.3tn from 2019-20 budgeted amount of Rs 1.8tn. Further, the report may also see downward revision in other current expenditures like subsidies, and social safety program along with obtaining surplus from provinces (mainly Punjab and KPK).

The analyst believes incremental tax measures can include, increase in GST by 1ppt to 18 per cent across the board, increase in FED on select items, hike in additional custom duties, increase in regulatory duties on imports of consumer discretionary items, uniform taxation for petroleum products and revenues from amnesty scheme among others.

If above measures materialize, they may likely keep Topline Universe earnings growth flat versus our previous estimate of 11 per cent at start of 2019. This may prompt us to revise down our KSE-100 index target for December 2019 to 38,000-42,000 vs. previous 40,000-45,000.

The report continues liking for cash rich companies, select Banks, E&Ps and Textile which will benefit from current monetary tightening environment, and higher rupee dollar parity.