The government will present the annual budget tomorrow with reportedly an outlay of nearly Rs 18 trillion for the fiscal year 2024-2025. The budget was to present on June 8 but it delayed due to Prime Minister Shehbaz Sharif visit to China.
This budget is likely to mark new and enhanced tax collections. It is said to show around 12 percent increase then the previous year- Rs11 trillion, over Rs9.4 trillion in 2023-24. An amount of Rs 2.10 trillion is likely to be allocated for defense in this budget. It is being increased from Rs1.80 trillion. The target of transfer to the provinces was likely to be fixed at Rs 5.32 trillion while the volume of the Public Sector Development Program (PSDP) is expected to be set at Rs 780 billion in this budget.
Importantly, the IMF deemed Pakistan’s PSDP for 2023-24 as “unaffordable” mainly due to limited fiscal space, noting a total cost of Rs12 trillion to complete approved projects, requiring over 14 years. The federal government exceeded the budget deficit target by 47 percent – Rs. 2.1 trillion from Rs. 6.68 trillion in fiscal year 2022-23. This budget is likely to have included strategies including debt re-profiling, expenditure reforms, and broad-based taxation. Pakistan narrowly escaped a default last summer due to the IMF bailout of 3 billion USD over nine months. The growth target for the upcoming year is expected to be higher at 3.6% compared to 2% this year and economic contraction last year. Reportedly the National Economic Council (NEC) has also approved Rs. 3.8 trillion to boost the economy of the country.
The Council decides to continue funding constituency-based schemes and ongoing provincial projects while approving an indicative national development plan worth Rs3.792 trillion for the next fiscal year to increase the economic growth rate to 3.6 percent from the current 2.4 percent. The NEC approved increasing annual development plans worth Rs. 2.095 trillion. The total investment-to-GDP ratio is expected to increase from 13.1 percent in 2023-24 to 14.2 percent in 2024-25 due to expected economic turnout and improved business environment. Fixed investment is expected to grow by 27.6 percent on a nominal basis, whereas as a percentage of GDP, it is expected to increase from 11.4% in 2023-24 to 12.5% in 2024-25. National savings are targeted at 13.3% of GDP for 2024.
This budget will likely to speak of jobs in the formal services and manufacturing sectors besides laying the framework for an extended economic rebound powered by exports and homegrown manufacturing rather than imports. The BBR is being new targets for tax collections from the wholesale and retail sectors.
This sector is characterized by high taxation and tax evasion. According to a recent report by Planet Retail, the retail market in Pakistan has crossed $152 billion, which makes the sector the third-largest contributor to the country’s GDP and its second-largest employer. According to the FBR, the retail market accounts for a whopping 18% of the GDP. Meanwhile, its contribution to the national exchequer is a meager 3.9%. Taxes on salaried persons are also likely to increase in this budget. The salaried class is paying a substantially higher proportion of their income compared to the corporate class. Salaried persons are the think tank of this country, and pressurizing them to this extent will further force them to leave Pakistan. They are leaving Pakistan at the pace of around 800,000 people per year. there are reports that the percentage of tax on salaried persons is going to cross 35 percent that was around 20% in past.
Pakistan is in talks with the IMF for a loan estimated to be anything between 6 to 8 billion USD to avert a default for an economy that is growing at the slowest pace in the region. This budget holds critical significance for Pakistan’s IMF program and must close the gap between revenue collection and expenditures.
The growth target for the upcoming year is expected to be higher at 3.6% compared to 2% this year. Prime Minister has already expressed tough decisions and reforms for the economic survival of the country.
Meanwhile the ruling PMLN’s ally PPP looks different from the government’s budget approach. The PPP’s Syed Khursheed Shah said “The government neither told us anything related to the budget nor took us into confidence. We don’t know what the PML-N is doing about privatization policy, taxes, and developmental programs. We are unaware whether the government is preparing a budget of its own or of the IMF.”
The budget session is expected to take a break from June 13 to 19 and will resume on June 20. A general discussion on this budget will be held from June 20 to 24. The debate on cut motions is scheduled for June 26 and 27, while June 28 is designated for the discussion and approval of the Finance Bill of the government.
(Author: Senior journalist Rana Kashif)
