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The annual budget is a cornerstone of a country’s economic policy. This document outlines the government’s decisions on increasing or decreasing expenditure in specific sectors. It also projects the revenue to be collected through taxes and other sources. Based on these estimates, the government allocates funds to various sectors, ministries, and provinces.

Creating a budget involves an accounting process grounded in policy objectives. This process is divided into six key steps: Preparation, Authorization, Execution, Reporting and Monitoring, Review, and Policy Setting. While this approach appears comprehensive, errors in the initial steps often render the latter stages ineffective. A notable example is the last federal budget for FY24, which underwent significant changes shortly after being presented in parliament. The annual budget statement (ABS) is the primary document for the federal budget. Following its preparation and authorization, the ABS is submitted to the Senate and ultimately made available to the public. Regarding financial details, the ABS clearly distinguishes between “Receipts” and “Expenditures.”

Finance Minister Mr. Muhammad Aurangzeb, the former CEO and president of HBL presented the Federal Budget 204-25 for a coalition government that is under pressure on three counts; satisfying the International Monetary Fund (IMF), providing some relief to the inflation-weary public, and ensuring growth for an economy that has faced stagnation in the last few years. The Government is hoping for a larger, longer facility with the IMF, its requirements are also likely to be tougher for Pakistan in pursuit of its 24th bailout. The budget was announced with a total outlay of Rs18.9 trillion (up 30% compared to the budgeted outlay of FY24), and gross revenue receipts are expected at Rs17.8 trillion. The Federal Board of Revenue (FBR) taxes are envisaged at Rs12.97 trillion, an amount nearly 38% higher than the outgoing fiscal year.

The budget comes a day after the government said economic growth of 2.4% is expected in the outgoing fiscal year and it would miss a target of 3.5%, although revenues were up 30% over last year, and the fiscal and current account deficits were under control. Inflation, which has proved to be a headache for Pakistan’s policymakers in recent years, was projected at 12% for the coming fiscal year. The minimum wage has been enhanced to Rs37000. Mr. Muhammad Aurangzeb has said that the Government is targeting a modest 3.6% growth for the coming fiscal year, as Islamabad looks to appease the International Monetary Fund (IMF) and balance its burgeoning books with higher taxation. Rs12.97 trillion is FBR’s target, which is 38% higher than the outgoing fiscal year. For PSDP, “Rs1.5 trillion has been allocated which is 101% higher than the previous year.” An amount of Rs4 billion is allocated to ‘e-bikes’ and another Rs2 billion to energy-saving fans for the promotion of energy conservation.

Receipts or revenue consists of balances of all budgetary receipts, e.g. Revenue Receipts, External Receipts, and Public Account Receipts. Revenue receipts contain all the tax and non-tax revenue to be collected by the FBR and the government during that year.  Combined, these resources constitute federal gross receipts. This means that the provincial share is deducted to arrive at net federal receipts available to finance the federation’s expenditures. For the upcoming fiscal year, Pakistan’s net fiscal revenue receipts are estimated to be at 10.377 trillion. Meanwhile, the total receipts is estimated at its highest ever Rs 24.38 trillion. Total revenue receipts, both tax and non-tax, add up to around Rs 17.815. Sales Taxes, Federal excise duties and Customs duties all are estimated to increase by a massive amount, with just the Sales tax estimate increasing by more than 36% or Rs 1.3 trillion. Additional resources in receipts may include privatization proceeds plus credit from the banking sector to finance government expenditures. The government has estimated Rs. 30 billion as privatization proceeds in the upcoming year, showcasing its hope for privatization of loss-making State Owned Enterprises (SOEs).

Most of the revenue receipts have been increased by a huge amount to account for this highest-ever budget. The tall order of expenditure, which will be later explained will only be possible if the government is able to pull off some of these extraordinary changes. For example, total revenue receipts have been estimated to grow by a massive 47%. Similarly, the collection of direct taxes by the FBR, such as the income tax, has been estimated to increase by a whopping  48%. For reference, after a series of strict reforms and coercive actions promised to massively impact the tax net of the country, the FBR could only increase its direct tax collection by a little over 13% in FY24. A lot of these expected receipts are reliant on high indirect taxes once again. The estimated growth of indirect taxes is up to 45% higher than the estimated collection target for FY24. It is important to note that the target was later revised and the government ended up collecting a higher amount in indirect taxes than it planned.

The other part of the ABS is expenditures. Expenditure is broken down into current expenditure and development expenditure and is separately shown for expenditure on the Revenue Account and expenditure on the Capital Account. Expenditure on Revenue Account signifies that portion of expenditure which is met from resources such as tax revenue and receipts, whereas expenditure on Capital Account refers to expenditure which is financed from loans, finances, credits, grants, and other borrowings. 

The expenditure on revenue for FY25 is estimated to be Rs 17.2 trillion, almost Rs 200 million more than the optimistic revenue receipts. The biggest current expenditures on the revenue account that Pakistan incurs are General Public Service and Defense affairs and services. The General Public Service (GPS) mainly inculcates the servicing of domestic and foreign debt. Apart from that it includes administrative and research expenditures of “General Public Service”. Meanwhile defence expenditure includes the military and defense forces  cost. Collectively these two expenses are budgeted at Rs 15.75 trillion which is almost 91% of the total expenditure. As per the proposed budget, Pakistan is estimated to spend 33% more than it estimated to and 17% more than it actually spent in FY24 in debt servicing. With Rs 9.775 trillion expected to be spent in debt servicing, the debt servicing alone eats up almost all of our net revenue receipts (Total revenue receipts minus provincial share). In the past, Pakistan has financed the deficits of its budget through borrowing from international and domestic sources. However, it is this very unsustainable nature of budgeting that has led Pakistan to where it is today. Another significant expense under the GPS which has crossed the 1 trillion mark for the first time this year is pensions. A massive unfunded expense, pension is often referred to as a time bomb. The pension expense, despite the call for reforms, has gone up by more than 26% marking a Rs 213 billion increase.

Other heads under the current expenditures include Public order and Safety Affairs, Economic Affairs, Health, Education and Social protection etc. While significant, these expenses account for less than 10% of the total expenditures on the revenue account.

The salient features of the Budget are:

  • Gross revenue receipts expected at Rs17.8 trillion
  • Inflation is seen at 12% in FY2024-25
  • Economic growth target is fixed at 3.6% for the fiscal year 2024-25
  • The overall fiscal deficit is at Rs7.283 trillion
  • Overall fiscal deficit at GDP 5.9%, down from the revised 7.4% of FY2023-24
  • Non-tax revenue envisaged at Rs4.8 trillion
  • Federal PSDP budgeted at Rs1.400 trillion
  • Non-bank borrowing expected at Rs2.662 trillion
  • Rs5.142 trillion expected from bank borrowing
  • Rs666 billion earmarked for net external receipts
  • Privatization proceeds expected at Rs30 billion
  • Rs9.775 trillion earmarked for interest payments
  • Rs1.014 trillion to be spent on pensions
  • Rs2.122 trillion allocated for Defense Services
  • Rs1.777 trillion earmarked for grants and transfers to provinces
  • Rs1.363 trillion to be spent on subsidies
  • Running of civil government and emergency provision expected to consume Rs1.152 trillion
  • Rs1.674 trillion allocated for development and net lending
  • FBR taxes envisaged at Rs12.97 trillion, around 40% higher than the outgoing fiscal year
  • Increase in the allocation of BISP from Rs466 billion to Rs592 billion, subsidy allocation of Rs65 billion for utility stores corporation, Rs10 billion kept for Ramzan package
  • Pensions of government employees to be increased by 15%
  • 25% increase in salaries of Grades 1 to 16 and 20% in Grades 17 to 22
  • Rs37,000 minimum wage proposed
  • Extra Federal Excise Duty (FED) of Rs1,000 per ton was imposed on cement, bringing the total FED to Rs3,000 per ton of cement dispatched
  • GST exemption granted to the FATA/PATA region to be removed
  • The sales tax rate for point-of-sale (POS) retailers dealing in leather and textile products increased from 15% to 18%
  • The maximum limit for petroleum levy enhanced for petrol and diesel to Rs80 per litre
  • Withdrawal of custom duties exemptions on CBU imports of hybrid vehicles
  • Withdrawal of concession on import of electric vehicles with a value exceeding US$ 50,000
  • Advance tax on registration of motor vehicles above 2,000 cc will be fixed at a certain amount in proportion to the value of the vehicle
  • Iron and steel scrap to be exempted from levy of sales tax
  • Rs253 billion allocated for the development of the energy sector
  • ‘National Fiscal Pact’ proposed with all provinces
  • A new category of ‘Late Filers’ introduced in the income tax law under the Finance Bill 2024
  • GST on the tier-1 textile retail sector enhanced from 15% to 18%.
  • CGT on non-filers to go as high as 45%, while on filers of income tax returns, it will stay at 15%.
  • Rs86.9 billion allocated to promote remittances.
  • Rs79 billion allocated to the IT sector. For an IT park in Karachi, Rs8 billion has been allocated.
  • CGT on non-filers to go as high as 45%, while on filers of income tax returns, it will stay at 15%.
  • To Promote solar, energy, and wind,. Rs253 billion allocated for energy sector.
  • BISP program allocation has been increased by over 27%.

Pakistan has been in the grips of low economic growth, high inflation, and high debt distress. For this, the country paid a lot of growth sacrifice at the back of a high policy rate, kept up to control inflation. Firstly, the sacrifice that was paid was a lot more than it should have been because inflation is determined by not just aggregate demand squeeze policies, but also by supply-side policy emphasis, both through better incentive-, and governance structures.

Secondly, now that inflation had finally come down from the highs of close to 40 percent, and closer to single digits– a little below 12 percent currently– the federal budget that has been announced is likely to increase inflation, and the high cost of capital reflected in the budget in terms of a substantial amount of interest payments budgeted– around 57 percent of the total current expenditure earmarked in this regard– along with significant increase in indirect taxes, and petroleum levy– increased by Rs 20 per litre on petrol, and diesel, reportedly– all but likely to increase inflation, and reduce economic growth.

Highlighting a likely substantial increase in taxes in the next fiscal year, a recent Bloomberg published article ‘Pakistan hikes taxes in the budget as it prepares for new IMF loan’ pointed out ‘The government plans to increase tax revenue by 40% to 13 trillion rupees ($47 billion) in the fiscal year starting July 1, the finance minister said. This will help it achieve a 1% federal primary balance, which is the difference between revenues and expenditures excluding interest payments on debt. …Rising taxes may fuel discontent among consumers and businesses, who are already contending with painful energy costs and Asia’s highest inflation rate of more than 11%.’

This is likely to have an increasing impact on the already high level of poverty, and income inequality, not to mention a likely negative impact on an already weak political voice, given the lack of fiscal space on account of high interest payments, and low growth would not allow much-needed increase in welfare spending. Moreover, lack of fiscal space, and an overall weak level of multilateral spirit, will also have a reducing impact on the already low level of climate-related spending.

Looking at the ‘Budget in Brief’ document, released by the Ministry of Finance, one finds that the policymakers have not learned much from the negative impact of following austerity or fiscal consolidation policy, especially in the pro-cyclical way. The statement is the first objective for the 2024-25 budget, which is ‘Economic stability and growth through fiscal consolidation and efficient use of public money.’ Just to look at the last four years, where the policy rate was only decreased around the start of this decade, and only a second time recently, but still inflation, not only saw a large increase during this time but also remained quite stubborn. This clearly indicated that inflation had strong supply-side determinacy, and was not primarily influenced through aggregate demand-side policies. So, the role of cost-push-, and imported inflationary channels, in addition to global aggregate supply shock, and the rise in geopolitical conflict, all had a telling impact on inflation.

With regard to keeping a tight monetary policy stance for a long time, a recent article ‘Pakistan cuts interest rate for the first time in four years’ published by Bloomberg pointed out ‘Pakistan’s central bank lowered its benchmark rate by a bigger margin than expected, the first reduction in four years, after consumer prices eased in the South Asian nation.’ Hence, instead of achieving this objective through fiscal consolidation, or monetary- and fiscal austerity policies, the government should control inflation, increase investment, and in turn, economic growth through more balanced, aggregate demand- and supply-side policies, and that too in a counter-cyclical way, so that economic growth and macroeconomic stability place on a sustainable footing. In fact, the second stated objective of the 2024-25 budget, which is ‘Bringing public debt to GDP ratio to sustainable levels’ requires a non-austerity policy approach, given the policy of keeping a high policy rate to reduce inflation, has substantially increased debt distress, and when clearly over-board austerity policies have seriously hurt economic growth, inflation, and debt sustainability prospects over the years.

Financial and Economic experts opinioned that this budget is the budget of an economically enslaved nation. It would bring no change in the life of the common man but only hike further the already alarming poverty and hunger. Pakistan is no more a sovereign country at least financially, and its proof that our budget is prepared as per the dictation of the International Monetary Fund (IMF) and will be completely entangled in the debt trap. The government has to borrow Rs9000 billion more just to bridge the deficit gap, which means the deadly debt trap would be further tightened around the neck of this enslaved nation. On the other hand, the Lavish subsidies are given to the economic ‘white elephants’. Even a subsidy of more than a billion of rupees is given to Karachi Electric (KE)  that is a private entity already sucking the blood of the poor people; where is no subsidy on wheat or other food items.

Similarly, the government highlighted that despite being an almost negligible contributor to global warming, the costs of climate change to Pakistan were not only substantial but continuously increasing as the country faced severe economic challenges. The accelerated impacts of climate change have added a new layer of pressure on the economy, including the exogenous shock of severe climate disasters, which in 2022 exerted significant losses on GDP. The rising inflation, high indebtedness, low growth, currency depreciation, and depleted foreign currency reserves have added to the scale and multitude of challenges.

It also pointed out that stringent climate change mitigation could significantly raise government expenditures and resultantly, the federal fiscal deficit. However, it will also yield economic and climate benefits in the medium and long term, restricting the average degree temperature to increase significantly. As such, it is critical to highlight that climate change is a long-term phenomenon, requiring climate justice by the international community to join hands with Pakistan to make joint efforts for climate change mitigation.

The statement of fiscal risks warned that under no or lower efforts to climate change mitigation, the loss to GDP will be greater than the stringent mitigation scenario. “On the fiscal side, the decreased revenue collections due to less economic activity and lower productivity may yield a higher fiscal deficit. Furthermore, climate change mitigation along with efforts for more revenue collections are more promising in the long term for fiscal sustainability in line with the baseline scenario”. The Ministry of Finance emphasized stable macroeconomic policies to prevent excessive exchange rate fluctuations and attract long-term investments, contributing to overall economic resilience and minimizing fiscal risk, while simultaneously accumulating foreign exchange reserves for a financial cushion against exchange rate volatility. During such a period of economic stability and favorable trade balance, the government could build foreign currency reserves and manage these reserves through investments in safe and liquid assets and support export-driven sectors for increased foreign currency earnings and improved trade balance.

In fact, the second stated objective of the 2024-25 budget, which is ‘Bringing public debt to GDP ratio to sustainable levels’ requires a non-austerity policy approach, given the policy of keeping high policy rate to reduce inflation, has substantially increased debt distress, and when clearly  over-board austerity policies have seriously hurt economic growth, inflation, and debt sustainability prospects over the years.

The author, Nazir Ahmed Shaikh, is a freelance writer, columnist, blogger, and motivational speaker. He writes articles on diversified topics. He can be reached at