Karachi, December 31, 2021 (PPI-OT): Pakistan Economy: Tax and SBP Amendments to pave way for IMF

Govt., in the middle of protests by opposition, successfully tabled two crucial bills for the resumption of IMF program namely, Finance (Supplementary) Act 2021 and State Bank of Pakistan (Amendment) Act 2021.

The former clearly reflects authorities’ determination to clamp down imports and promote local manufacturers, targeting to raise PkR343bn in the meantime to minimize deviation from IMF mandated primary deficit target of 0.7% of GDP (adjusted for certain one-offs included in the budget).

The tabled SBP bill has largely catered to IMF recommendations however two important amendments in our view are relating to disallowance of roll-over of Govt. borrowings from the Central Bank (which may steepen the curve in the medium to long run), and limiting refinance facility to Commercial Banks only in pursuit of SBP objectives.

In the listed space, select-automobile manufacturers (+1000CC manufacturers) stand out to be the biggest beneficiary along with refineries as the Govt. moved ahead with meeting one of the major demands of the local refinery sector.

Overall, the budget is neutral-to-positive where the key checkpoint for market performance is the approval of US$1bn disbursement by the IMF board in our view.