PSX Slips After Record High as Budget Uncertainty Looms

KARACHI: The Pakistan Stock Exchange (PSX) closed lower on Thursday as investor sentiment turned cautious ahead of the federal budget and ongoing discussions with the International Monetary Fund (IMF). Despite an initial rally, profit-taking led the benchmark KSE-100 Index to settle at 119,153.04 points, marking a decline of 778.41 points (-0.65%) from the previous close.

The index had surged to an intraday high of 120,699.17 points, gaining 767.72 points (0.64%), before retreating to a low of 119,062.03 points, down 869.42 points (-0.72%).

Market analysts attributed the downturn to uncertainty surrounding fiscal reforms linked to IMF negotiations. “Budget jitters are keeping investors on the sidelines,” said Ahfaz Mustafa, CEO of Ismail Iqbal Securities, highlighting growing nervousness as budget talks continue.

IMF Agreement Could Boost Growth Stocks
Despite the market’s volatility, analysts remain optimistic about long-term prospects. “The market remains attractive, with investors consistently deploying funds,” noted independent investment analyst AAH Soomro. He suggested that an agreement with the IMF on budgetary measures could drive growth-sector stocks and sustain the bullish trend, potentially pushing the index toward 150,000 points within a year.

Investor confidence received a boost earlier this week as Pakistan’s nominal GDP surpassed $400 billion for the first time, according to provisional estimates from the National Accounts Committee (NAC). The economy expanded to Rs114.7 trillion ($411 billion) in FY25, up from Rs105.1 trillion ($372 billion) in the previous fiscal year. The NAC also reported GDP growth of 2.68%, though still below the government’s initial 3.6% target.

IMF Pushes for Higher Taxes on Agricultural Inputs
Meanwhile, budget negotiations between the government and the IMF remain ongoing. The IMF has proposed increasing the Federal Excise Duty (FED) on fertilisers from 5% to 10% and introducing a 5% tax on pesticides in the upcoming budget.

Prime Minister Shehbaz Sharif is reportedly advocating for a reconsideration of these tax hikes, citing concerns over their impact on the farming sector. The IMF is also pushing for the implementation of Agriculture Income Tax (AIT) from July 1, 2025, alongside broader tax base reforms, including uniform turnover thresholds for income and GST registration.

Preliminary estimates suggest that AIT could generate Rs40–50 billion in provincial revenue in the short term. If the IMF’s tax proposals are fully implemented, additional revenue from fertiliser and pesticide taxes could amount to Rs30–40 billion in the next fiscal year.