Pakistan Bulletin

An up-to-date and informed analyses of key issues of Pakistan.

Amid Despair and Hope

June 2024

As Pakistan heads to the new financial year, experts are of the view that the 2024-25 budget, prepared in collaboration with IMF, may do little to address the economic challenges being faced by the masses.

There was a time when the federal budget announcement was treated as a big occasion. The public would eagerly follow it with anticipation for relief in the form of lowering of the prices of daily essentials or for tax signals influencing the purchase of big ticket items such as real estate or vehicles.
But those days have long gone by. There are no such expectations from the recent budgets for the masses. Rather, it is simple mathematics for many with the budget neatly divided into debt-servicing, defence-expenditure, and the day-to-day running of the government, leaving a very limited proportion for development and social service expenditures, the fruits of which hardly reach the masses. Add to it, the loopholes in the tax collection mechanism and the ambitious fiscal targets, which have to be revised several times in the financial year. And it is not just that; there is a perception that the budget has to have a nudge of approval from the IMF which prescribes a bitter pill for the masses to swallow at the start of every financial year.
This year’s budget has been no different. Pakistan’s Finance Minister, Muhammad Aurangzeb, presented the Rs. 18.9 trillion federal budget 2024-2025 on June 12. To the analysts, the budget is “in line with the IMF guidelines” to pave the way for the next bailout package. That explains the document as well.
While the government takes credit for presenting the best budget possible in the face of political and economic challenges, the economic indicators throw ample light on the plight of ordinary citizens; poor economic growth, a 40 percent depreciation of the rupee for an import-dependent economy, and rampant inflation in the past few years that pushed many below the poverty line.
The government’s plans for an economic turnaround are based on securing an IMF programme which could help Pakistan dodge an economic collapse in the long term.
The government claims it is on the right track as inflation is likely to decrease in the coming days. “Pakistan’s foreign exchange reserves have been strengthened, and international investors are now seeking opportunities to invest in our economy,” said the finance minister presenting the budget speech.
In the same vein, the Minister showed the government’s understanding of the situation for the common people, emphasizing the need for patience to achieve economic development and progress.

While the government takes credit for presenting the best budget possible in the face of political and economic challenges, the economic indicators reflected in high inflation and 40 percent depreciation of rupee present a different picture.

The government has proposed Rs. 17,203 billion for the current expenditure in the fiscal year 2025 budget, which is a 29 percent increase from the previous year. Interest payments have increased 34 percent to Rs. 9,775 billion. The defence expenditure constitutes Rs. 2,122 billion, 17.6 percent higher than last year’s budget.
Pakistan’s total revenue for fiscal year 2025 is budgeted at Rs. 17,815 billion. After accounting for provincial transfers of Rs. 7,438 billion, the net revenue stands at Rs. 10,377 billion, representing a significant 48.7 per cent increase from the previous year. The budget deficit, nonetheless, is projected at 6.9 percent of the GDP.
Like previous years, the government has set an ambitious tax collection target at Rs. 12,970 billion, a 38 percent increase from the last year.
The big question for the common citizens is: is the government committed to tackling inflation, which in the words of the Finance Minister, had surged to 38 percent a year ago. The government has set an inflation target at 12 percent for the next fiscal year. The government will be required to play its regulatory part in maintaining a balance in the supply and demand of essential commodities especially food items which has a direct bearing on the household.
A sum of rupees Rs. 3,792.2 billion has been allocated for the Public Sector Development Programme (PSDP) in the next fiscal year. This is a 40 percent increase from last year’s Rs. 2,709 billion. The total federal PSDP, which includes state-owned enterprises and public-private partnerships, has received a boost with an allocation of Rs. 1,696 billion, representing a 47.5 percent increase from last year’s Rs. 1,150 billion. Provincial PSDP allocation, on the other hand, has risen by 34.4 per cent to Rs. 2,095 billion, up from Rs. 1,559 billion in the previous year.
The budget seeks to boost the government’s tax revenues by over 40 percent to Rs 12.97 trillion from a projected collection of Rs. 9.25 trillion during the outgoing year. The additional tax measures of Rs. 2.2 trillion, equal to 1.8 percent of the GDP seek to broaden the scope of consumption tax. But, if the experience is any guide, that would end up increasing the existing tax burden on the salaried and non-salaried class.
The government aims to do away with tax exemptions for various sectors of the economy, partially bringing untaxed income into the tax net, tighten the noose around non-filers, and boost the petroleum levy by Rs. 20 per litre to Rs. 80. The remaining increase of Rs. 1.5 trillion in tax revenues is expected to come from an expansion in the economy due to a targeted 3.6 percent GDP growth.
The government believes that the additional tax measures and the proposed increase in the petroleum levy will help raise the tax-to-GDP ratio for next year to an estimated 11.5 percent of the size of the economy from this year’s estimated 9.6 percent.
On paper, the measures announced by the Finance Minister seem to be steps in the right direction, seeking to tax real estate investors, stock investors, exporters, the retail supply chain, etc.
A pertinent question is while the government increases the tax collection target to narrow the fiscal gap, does the budget make an effort to cut expenditure?
In his budget speech, the Finance Minister talked about reducing the size of the government but he did not announce any solid policy measure in this regard.
The total current expenditure is estimated to increase by 21 percent to Rs. 17.2 trillion, including the power and other subsidies and defence budget. Likewise, the consolidated development expenditure of the centre and provinces has spiked by over 58 percent to nearly Rs. 3.8 trillion as the government hopes to boost economic growth through its spending on large infrastructure projects.

The government’s plans for an economic turnaround are based on securing an IMF programme which could help Pakistan dodge an economic collapse in the long term.

At the same time, the government’s financial team has identified a few critical risks to the next year’s budget and medium-term outlook, which include higher interest rates, currency depreciation and greater subsidy requirements, challenging revenue targets, lower economic growth, unexpected climatic or natural disasters, and poor performance of State-Owned Entities (SOEs).

For the past many years, due to various factors, it has become increasingly difficult for the government to keep the budget estimations stable throughout the year, especially for the common citizens. Almost all budgets follow a number of mini budgets and random increase in petroleum and energy prices, not to mention poor control over food market. All these erode the real income of common citizens, especially the heavily-taxed middle class and the living wage-deprived lower income groups. No budget, whether IMF approved or indigenously planned, have ever provided a solution to the miseries of the common citizens. 

Ather Naqvi


The writer is Assistant Editor at The News International, magazine section.

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