KARACHI: Pakistan’s shares on Friday extended gains and briefly hit an all-time high of 77,310 points during the intraday trading, after posting the biggest single-day gain on Thursday following the announcement of the federal budget for the next fiscal year.

The Pakistan Stock Exchange (PSX) gained more than 1,000 points during the day, but the benchmark KSE100 index closed at 76,706, reflecting an overall gain of 499 points.

The current bullish spell in the market is attributed to the budget presented on Wednesday that did not levy additional taxes on dividends or change the capital gain tax (CGT) for filers.

Some intraday profit taking was observed during the latter part of the trading session, as investors preferred to book their profit before the long weekend on account of Eid Al-Adha holidays.

“The market is trading at an all-time high as budget related uncertainty is over and there are no major changes in CGT and dividend tax rate for filers,” Ali Nawaz, CEO of Chase Securities, told Arab News.

Pakistan’s stock market is experiencing an unprecedented rally, setting new records at a remarkable pace since June last year, following an International Monetary Fund (IMF) bailout program.

Within a year, the KSE100 index has soared by about 85 percent, marking the swiftest recovery witnessed in over two decades.

“The finance minister’s plan to launch Eurobonds of up to $1 billion along with a fresh bid for $4 billion foreign bank loans, projections for massive increase in SOE [state-owned enterprise] dividends and SOE privatization proceeds in [the next fiscal year] played a catalyst role in the record close on Friday,” Ahsan Mehanti, CEO of Arif Habib Corporation, said.

The Pakistani finance chief, Muhammad Aurangzeb, mentioned the government’s plan to raise up to $1 billion through international bonds, with up to $300 million to be generated in the Chinese market.

During the last week, the KSE100 index gained four percent, reflecting a better performance than market expectations.

In the budgetary proposal, the tax rate on dividend and capital gain from stock market for filers was maintained, though there was increase in tax on dividends from mutual fund deriving more than 50 percent income from profit on debt and increase in CGT from three to 15 percent on property.

Analysts believe this can divert more investment toward the stock exchange.

Decline in policy rate by 1.5 percent in monetary policy meeting on Monday by the central bank also provided stimulus to the market.

Pakistani analysts said the outcome of the ongoing talks between the government and the IMF will set the future direction of the stock market.

The finance minister noted this week the country planned to sign a staff-level agreement with the global lender in July. He informed that talks with the IMF were going on in a positive direction.

Pakistan aims to secure a long term and bigger bailout program of about $8 billion from the IMF to stabilize its economy.

Pakistani financial experts believe the budget proposals are in line with the IMF guidelines and will help secure the bailout from the fund.

“Approval of budget will pave way for the new IMF program which will lead to economic stability, controlled inflation and reduction in interest rates going forward,” Ali Nawaz of Chase Securities commented.

ISLAMABAD: Pakistan’s plan to raise taxes in its 2024-25 budget and boost state revenues will help it win approval from the International Monetary Fund for a loan to stave off another economic meltdown, but could fuel public anger, a former finance official, experts and industrialists said. 
The South Asian country has set a challenging tax revenue target of 13 trillion rupees ($47 billion) for the year starting July 1, a near-40 percent jump from the current year, and a sharp drop in its fiscal deficit to 5.9 percent of GDP from 7.4 percent for the current year.
Pakistan had to reduce its fiscal deficit as part of negotiations with the IMF, with which it is discussing a loan of $6-8 billion, as it seeks to avert a debt default for an economy growing at the slowest pace in the region.
“The budget is enough to get an IMF Programme, as long as ... the budget is passed in the way it is presented,” former finance minister Miftah Ismail said. But he said the revenue targets will be challenging, as will the growth target of 3.6 percent.
“The two cannot happen simultaneously,” said Ismail, who as then-finance minister successfully negotiated the revival of Pakistan’s last Extended Fund Facility (EFF) program in 2022.
Outside analysts largely concur. 
Emerging Market Watch’s Metodi Tzanov believes the budget in its current form should be acceptable to the IMF.
“The government ticked almost all the right boxes to comply with IMF conditions, including withdrawal of tax exemptions, raising corporate tax for exporters, increasing the personal income tax rate, tightening the noose around non-filers, and hiking fuel tax,” he said.
But some said the IMF might baulk if it saw the tax target as unrealistic.
Finance Minister Muhammad Aurangzeb, who presented the budget for the first time, said he expected to seal a Staff-Level Agreement with the IMF in July.
The IMF did not immediately publicly comment on the budget and did not respond to questions sent by Reuters.
The big rise in the tax target is made up of a 48 percent increase in direct taxes and 35 percent hike in indirect taxes. Non-tax revenue, including petroleum levies, is seen increasing by a whopping 64 percent.
Taxes have notably been slapped on previously protected export-oriented sectors such as textiles, which consistently make up over half of Pakistan’s exports, and whose receipts keep a persistently high external account deficit in check.
The representative body for the sector, All Pakistan Textile Mills Association, called for a review of the budget, terming it “extremely regressive” and one that “threatens the collapse of the textile sector and its exports.”
It warned of “dire consequences for employment and external sector stability, as well as for overall economic and political stability and security.”
The Pakistan Business Council also called for budgetary measures to be reconsidered.
“The budget prioritizes securing another IMF EFF but lacks innovation for domestic economic growth,” said Musadaq Zulqarnain, director at the Pakistan Textile Council and chairman of Interloop, one of Pakistan’s largest textile manufacturers.
The coalition government of Prime Minister Shehbaz Sharif does not have the luxury of a parliamentary majority to help it pass the budget smoothly.
Sticking to the reform measures will require it to resist pushback from key economic sectors as well as a broader public already angry at the prospect of further price rises.
Sharif’s party had to convince its largest ally, the Pakistan Peoples Party (PPP), without whom it does not have a majority, to attend the budget session in parliamentary. PPP said it was not happy with some of the measures.
But analyst Yousaf Nazar, formerly of Citibank, believes the protestations are just political posturing. “(PPP) won’t rock the boat,” he said.
With few options in the short term to support Pakistan’s recent stability, an IMF program appears crucial.
Increasing the tax base in an economy where proper documentation is often lacking will require considerable time and effort. Pakistan’s undocumented parallel economy is huge and 44 percent of its nominal GDP does not contribute significantly toward direct tax revenue, according to the Tola Associates, a tax firm.
Traders and agriculturalists in particular, both politically influential, have resisted the government’s push to register themselves and document their sales.
“If the tax base is not going to increase, moving forward, the country’s tax revenues growth can drop further and it might end up as a dead weight loss to the economy,” Tola Associates said in a note.
“The real challenge is that of implementation,” said former central bank chief and Managing Director at Alvarez & Marsal Reza Baqir.
“For example, the budget targets an ambitious increase in the tax-to-GDP ratio. Many previous budgets have similarly targeted ambitious improvements. I would hope that the lessons from why those ambitions were not realized have been reflected in this budget.”