Pakistan FY18 budget 'neutral' for cement industry

Announcing its FY18 Budget on Friday, the Pakistan government has increased the allocation for its Public Sector Development Program (PSDP) and reduced corporate tax, but on the other hand increased has Federal Excise Duty (FED) and provided no relief to aid dwindling cement exports.

Finance Minister, Ishaq Dar, in his budget 2017-18 has proposed the allocation of PKR1001bn (US$9.5bn) for the PSDP in FY17-18, of which 67 per cent will be dedicated to infrastructure projects. Meanwhile, FED has been increased from PKR1/bag to PKR1.25/bag. In addition, the Risk Sharing Guarantee Scheme will be launched to cater for rising housing demand which will provide 40 per cent credit guarantee covers to banks and other financial institutions.

Local analysts have deemed the 'budget' neutral for the cement industry, stating that increase in FED will ultimately be passed on to consumers. However, they caution that it will take time to pass on the increase due to existing pricing issues in the north of the country. Should local producers absorb the duty, earnings are expected to be affected by 8-9 per cent, they note.

In his post-budget press conference, Finance Minister Ishaq Dar expressed hope that the increase in FED and its impact on cement price should be absorbed by cement manufacturers in view of the increase in capacity utilisation by 30-40 per cent. Mr Dar estimated an increase of PKR12.50/bag of cement but cautioned that it should not be no more than PKR 6-7 due to the increase in production capacity.

The All Pakistan Cement Manufacturers Association (APCMA) is yet to comment on the newly-announced measures.