Pakistan government is going to announce federal budget for fiscal year 2022-2023 on June 10, 2022. The country is eyeing revival of an IMF program and it is likely that the upcoming budget will have measures that promotes fiscal austerity and stabilization.

According to Topline Securities the budget outlay for 2022-2023 is estimated at Rs9-9.5 trillion (11.5 per cent to 12 per cent of GDP) as against budget of Rs8.5 trillion (12.7 per cent of GDP) for the outgoing fiscal year.

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The government is likely to set tax revenue collection target of Rs7.25 trillion for the next fiscal year (9.2 per cent of GDP), which is up 19 per cent from the revised target of Rs6.1 trillion (9 per cent of GDP) for the outgoing fiscal year. It is likely to impose new taxation measures of Rs400-450 billion in the upcoming budget.

Current expenditure target is likely to be set at 12 per cent of GDP in FY23 or Rs8 trillion which is around 11 per cent YoY higher than what was budgeted in the outgoing fiscal year. Similarly, government is likely to set aside Rs3.5-Rs3.9 trillion (4.5 per cent-5.0 per cent of GDP) for markup payment for FY23 budget and Rs1.6 trillion is likely to be set aside for Defense expenditure which is 2.1 per cent of GDP.

For fiscal year 2022-2023, Federal Public Sector Development (PSDP) is budgeted at Rs800 billion vs. Rs466 billion disbursed in 10MFY22 and revised budgeted amount of Rs603 billion for the outgoing fiscal year.

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Consolidated PSDP (Federal & Provincial) is anticipated to clock in at Rs1.4 trillion (1.8 per cent of GDP) in the next fiscal year, as against Rs1.2 trillion in the current fiscal year.

Few taxation measures that are under consideration includes: 1) increase in super tax for Banking sector and re-imposition of super tax on highly profitable companies, 2) increase in tax rate for individuals earning high salaries, 3) reduction in tax concessions and exemptions for various sectors, 4) increase in regulatory duties on luxury items, 5) luxury tax on immovable property & vehicles, and 6) increase in taxes for non-filers.

With economic slowdown, tax revenue target of Rs7.25 trillion will be challenging to achieve in FY23. However, it will depend on the amount of new taxes to be imposed in Budget FY23.

IMF has already demanded government to remove tax exemptions & subsidies and increase the rate of taxes on few sectors as per news reports.

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Non-tax revenue target for FY23 is estimated at Rs1.6 trillion (2.1 per cent of GDP) as against Rs2 trillion (3.1 per cent of GDP) budgeted for FY22. Lower target is due to expected decline in petroleum development levy (PDL) during the year.

With likely slowdown in economic activity, total revenue target (tax & non-tax) of Rs9 trillion will be difficult to achieve. However, it will depend on how much new taxes government imposes in Budget FY23.

Net revenue receipts after provincial share is budgeted at Rs4.7 trillion for FY23 as against Rs4.5 trillion for FY22 budgeted.

Current expenditure target is likely to be at 12 per cent of GDP in FY23 or Rs8 trillion which is around 11 per cent YoY higher than what was budgeted in FY22.

The government is likely to set aside Rs3.5-Rs3.9rn (4.5 per cent-5.0 per cent of GDP) for interest payment for FY23 budget. This is against Rs3 trillion (4.6 per cent of GDP) budgeted for FY22. Rising debt & high interest rates is responsible for this 20 per cent+ increase in interest payments.

For defense expenditures, government will likely set Rs1.6 trillion or 2.1 per cent of GDP for FY23. This compares to an allocation of Rs1.4 trillion or 2.1 per cent of GDP in FY22.

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Annual Plan Coordination Committee finalized Federal Public Sector Development Program (PSDP) of Rs800 billion (1 per cent of GDP) for FY23. This compares to Rs466 billion of PSDP disbursed in 10MFY22 and revised budgeted amount of Rs603 billion for FY22. To recall, PSDP allocation even for FY22 budget was set much higher to the tune of Rs900 billion which was later revised down due to fiscal constraints.

Consolidated PSDP (Federal & Provincial) is anticipated to clock in at Rs1.4 trillion (1.8 per cent of GDP) in FY23, as against Rs1.2 trillion in FY22.

Low spending on development budget and no major reduction in current expenditure will affect overall economic activity in FY23, we believe.

The government will be setting fiscal deficit target of 6 per cent of GDP or Rs4 trillion for FY23 versus estimated fiscal deficit of Rs5.6 trillion or 8 per cent of GDP in FY22. We believe this fiscal discipline relative to last year may help in convincing IMF to resume the pending tranche.

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