The government had been forecasting growth of 4% for the next financial year, but after Revenue Minister Hammad Azhar delivered his budget speech to parliament on Tuesday evening, the government released a budget document showing it trimmed its growth estimate for the coming year to 2.4%.
The government has already slashed its year to June 2019 growth forecast to 3.3% from the 6.2% predicted at the time of the last budget. The IMF's estimates growth of around 2.9%.
Inflation, which hit 9% in May, is seen at 11-13% during fiscal year 2019/2020.
The benchmark 100-share index of the Pakistan Stock Exchange rose 278.08 points, or 0.8%, to close at 34,939.16 points on Wednesday, led by gains in materials, energy and financial stocks. Engro ENGR.SI , the country's biggest conglomerate, was up 1.87 percent.
Business leaders gave the budget mixed reviews. Some hoped money destined for real estate will now flow into stock markets after the government made it a crime to not pay taxes when buying or selling property.
Plans to widen the tax net and separate tax policy from revenue collection also won support. But analysts were sceptical of a forecast 25% increase in federal tax revenues to 5.55 trillion rupees ($36.8 billion).
"I see it as being positive from a business perspective," said Ehsan Malik, chief executive of the Pakistan Business Council which represents 60 major businesses.
However, he said a plan to withdraw tax incentives for export sectors such as textiles, leather goods and surgical equipment could deter investment.
Hafeez Shaikh, a government adviser who is the de facto finance minister, said the changes to collecting taxes on exports were modelled on those used by Bangladesh, which has surged ahead of Pakistan to become a regional export powerhouse.
"We have to collect our taxes, if Bangladesh and other counties can collect taxes, why shouldn't we," Shaikh told reporters on Wednesday.
He said the provisional IMF agreement would go before the global lender's board in Washington in two to four weeks.
Some analysts doubt the government will achieve its ambitious revenue collection targets. Though spending on civilian programmes was cut, the budget included a 5% budget increase for the powerful military.
"The government is unwilling to tighten the belt nor does it have a credible plan to raise tax revenues," said Yousuf Nazar, former head of emerging market equity investments at Citigroup and author of a book on Pakistan's economy.
(Writing by Drazen Jorgic; editing by Darren Schuettler) ((firstname.lastname@example.org; +92 307 8888 153; Reuters Messaging: email@example.com))