January 21, 2019 (MLN): The government is all set to announce its ‘Mini Budget’ on January 23, focusing primarily on measures to facilitate the local industries, along with additional revenue measures of up to Rs. 150 billion to counterbalance revenue shortfall and boost exports of the country. Along with amendments to the Finance Bill, the government is also expected to announce an Industrial Policy, which would be based on a 5-year plan.

As per a report by AKD Research, Pakistan's fiscal deficit is likely to go down from 6.3% to 5.9% of GDP as a result of measures included in the mini budget. However, taking cues from the last IMF program, government might target fiscal deficit of 5.5% of GDP, which opens tail risks to already revised PSDP (33.4% released of the revised target of PkR675bn in 1HFY19).

While many analysts believe that the Mini Budget will be positive for a number of sectors, given the government’s intent to improve ease of doing business, others say incentives such as abolishment of 0.02% advance tax on shares sale/purchase, standardization of CGT at 15% with 0% tax if holding period is less than three years, and reducing tax on dividends, could provide short-term relief to the equity market.

“Medium to long-term trend is dependent on the policy direction set by the supplementary budget. At present, while IMF entry is certain, different policies are given out with respect to Government's agenda ranging from populist measures (removal of CGT on banking transactions), import substitution (raised import duties on vehicles, white goods, finished good), and fiscal/external balance” an analyst from AKD Securities said

All in all, the mini budget is expected to bring upon inflationary pressure i.e. hike in fuel prices, cements, setting the course of interest rate hikes (Positive for Banks). It can potentially be beneficial for import substitution industries (Autos, selected chemicals), while negative for OMCs and Cements.

“Increase in FED and GST is likely to put pressure on the gross margins of these sectors, mainly because these sectors have no power whatsoever to pass on the negative impact on consumers” an analyst from JS Global told Mettis Global News.

“On the other hand, Autos Sector will be the key beneficiary from Mini Budget as decrease in imported cars’ age limit, increase in import duty on imported cars of higher then 1800cc along with allowance to non-filer to purchase vehicles will allow the sector to increase its market segment” he added.

Fertilizer sector is likely to benefit from relief on GIDC as it will reduce its cost of production, whereas Commercial Banks will gain from reduction/removal on Withholding tax on banking transactions Furthermore, decrease in duty of raw materials will largely benefit the Textiles sector.

Sectors such as Steel, Chemicals, Tiles, Telecom and Conglomerates are expected to remain indifferent towards the implementation of Mini Budget.

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