Mini budget to stabilise economic growth: analysts

KARACHI: The government’s fiscal measures, rolled out in the Finance Supplementary Bill, 2021, would stabilise economic growth, analysts viewed on Thursday, saying that the impact of the drive would hardly increase already runway inflation.

“The removal of sales tax concessions on imported and local items and an increase in the federal excise duty on the imported and local vehicles are expected to increase public revenue by R343 billion,” an analyst at Alfalah Securities said.

He said the supplementary bill would tighten fiscal policy including withdrawal of tax deductions on raw material and some sectors and a cut in development spending.

“The bill has targeted the undocumented sector primarily through imposing taxes on import stage since the new taxes are adjustable against sales tax and/or income tax payable,” said an analyst at Alfalah Securities in a report.

The government tabled the IMF-backed bill to get a positive review revive of a stalled $6 billion funding programme launched in 2019.

The fund demanded further fiscal measures as part of a broader structural reforms package covering areas from the power sector debt to corporate governance, climate change and trade policy.

Most analysts don’t see the measures announced in the mini budget to spark inflation expectations.

“This would not materially impact inflation basket as most of these measures do not directly impact those items,” said Fahad Rauf, the head of research at Ismail Iqbal Securities.

“So CPI (consumer price index) would not be impacted much. But it would reduce the purchasing power of middle class buying a new car (over 850cc), infant food, pharma products, solar panels, mobile phones, etc.”

Rauf said discouraging imported cars and other products would reduce some pressure on import bill “but most of our exports come from essentials, which depend upon global commodity prices, so don't expect a major impact”.

“Not taxing fertilizers was a good decision, which would have impacted farmers, who are already facing shortages and higher prices.”

By announcing a supplementary budget, the government wants to bring more people into the tax net especially the higher class which affords high taxes.

Tahir Abbas, head of research at Arif Habib Limited said the taxation measures such as restoration of GST on imported and luxury items announced by the government would not hurt the lower classes as imported packaged products are not usually used by the common people.

“We anticipate the inflation to be clocked in at 12 percent in December and at 13-13.5 percent in January,” Abbas said.

As consumer price inflation has accelerated into double digits, with staples like flour, sugar, oil and rice doubling in price over recent months, the rupee has fallen around over 15 percent since May.