Overview
- The sixth review of Extended Fund Facility (EFF) is to be presented to the IMF on Jan 12, 2022. This has called for fulfillment of certain preconditions for the renewal of the facility. The Government has, therefore, come up with Amendments in the Finance Bill – “Mini-Budget” that is aimed at fetching the remaining tranche of USD1bln against the total scheme of USD6bln. The Mini-Budget was introduced to the National Assembly on December 30, 2021, and was presented in the Senate on 4th Jan, 2022.
- The Bill is aimed at a two-fold agenda; first, to increase the tax base of the Government in order to manage the fiscal balance and second, to discourage imports in order to restrict the rising import bill and control the country’s widening current account deficit.
Overall Impact
- Under the bill, amendments have been proposed in Income Tax, Sales Tax and federal excise laws. However, the key highlight of the Bill is withdrawal of GST exemptions on some major items to the tune of PKR~343bln.
- As it appears, the bill is designed to restrict imports and its triggering inflation. However, it also directs removal of tax exemptions on some basic food items such as rice and sugarcane, which will push up headline inflation in the country. Several imported edibles are also expected to get costlier. PACRA R&P views Sectors with high dependency on imports such as Automobiles, Mobile Phones (to the extent of imports) and Food & Agriculture to bear negative impact, while Sectors that substitute local manufacturing with imports, such as refining, are expected to benefit from the bill. Sectors, such as pharmaceutical, where refunds/claims are available against sales tax imposed on raw materials, are expected to remain neutral with some changes in the cash flow cycles only. A major impact is expected on the Auto Sector which performed relatively better in the outgoing year. The sector may witness a dip in the demand, especially in an environment of tightened consumer financing terms and rising financing rates.
Macro-Indicator Snapshot:
Overview of sector Impact:
| Cluster | Impact |
|---|---|
| Agriculture & Allied | Negative |
| Food & Allied | Negative |
| Auto & Allied | Negative |
| Distributors | Negative |
| Telecommunication | Negative |
| Media | Positive |
| Pharma & Chemicals | Neutral |
| Infrastructure | Neutral |
| Infrastructure | Negative |
| Energy | Negative |
| Textile & Allied | Negative |
Agriculture & Allied
Sector Lead : Fatima Mahmood
Sector Lead: Momina Rehman
Food & Allied
Sector Lead : Fatima Mahmood
Sector Lead: Momina Rehman
Auto & Allied
Sector Lead : Momina Rehman
Sector Lead: Momina Rehman
Distributors
Sector Lead : Fatima Mahmood
Communication
Sector Lead : Fatima Mahmood
Sector Lead: Momina Rehman
Pharma and Chemicals
Sector Lead : Usman Sarwar
Infrastructure
Sector Lead : Ali Abdul Rehman
Sector Lead: Usman Sarwar
Engineering & Technology
Sector Lead : Insia Raza
Textile & Allied | Spinning
Sector Lead : Insia Raza
Energy
Sector Lead : Ali Abdul Rehman
Sector Lead: Ali Abdul Rehman
Sector Lead: Usman Sarwar
Technology
Sector Lead : Ali Abdul Rehman
Bilbography
Research Team
Saniya Tauseef – Asst. Manager
Momina Rehman – Associate Research Analyst
Fatima Mahmood – Associate Research Analyst
DISCLAIMER
PACRA R&P has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its accuracy or completeness is not guaranteed. The information in this document may be copied or otherwise reproduced, in whole or in part, provided the source is duly acknowledged. The presentation should not be relied upon as professional advice
