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Reading: Analysis of Pakistan’s Federal Budget 2024-25: Challenges and Expectations
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Pakistan's Federal Budget 2024-25:
PhotoNews Pakistan > Blog > Analysis of Pakistan’s Federal Budget 2024-25: Challenges and Expectations
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Analysis of Pakistan’s Federal Budget 2024-25: Challenges and Expectations

Web Desk
By Web Desk Published June 12, 2024 4 Min Read
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Pakistan Budget FY 2024-25 Photo Credits: Hum News
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Economists have scrutinized the Pakistan Muslim League-Nawaz (PML-N)-led government’s newly unveiled federal budget for 2024-25, totalling Rs18.9 trillion. The budget aims to steer the country from a fiscal crisis but has been criticized for lacking substantial reforms and logical financial strategies.

The budget, dictated by the “pressure of the International Monetary Fund (IMF),” includes steps considered illogical by many economists. For instance, the decision to end GST and eliminate other tax exemptions has raised questions about how the government plans to maintain inflation at 12%. This is particularly concerning given that over 40% of revenue targets are expected to be met through these tax and non-tax measures.

Government Employee Salary Increases

The government’s decision to increase the salaries of government employees from grades 1-22 by 20% to 25% is expected to impact the national exchequer by Rs1 to Rs1.5 trillion. This move comes when the country faces a severe fiscal crunch, prompting questions about the justification for such increases under the current economic conditions.

Pension Reforms and Financial Burdens

The budget introduces pension reforms, described as “disingenuous.” New employees will be covered under a contributory pension plan, effectively not receiving pensions for 40 years. Additionally, the federal and provincial governments are expected to incur significant increases in pension expenditures, raising concerns about the sustainability of these financial commitments.

Revenue Targets and Economic Growth

Despite the government’s ambitious revenue target of Rs12.9 trillion, there is scepticism about its achievability. The new taxes, including those on petrol, diesel, cement, and mobile phones, are expected to bring in Rs800 to Rs1,000 million. However, meeting the remaining revenue targets requires precise calculation and realistic economic measures.

Prospects of Meeting IMF Targets

There is cautious optimism that the government will meet the IMF’s 1% surplus target, although this may involve curtailing public sector development programs (PSDP) and other expenditures. The government’s approach aligns with IMF guidelines targeting a modest 3.6% GDP growth, contrasting with previous administrations’ higher growth targets.

Taxation and Economic Policy

The budget has introduced significant changes in taxation, notably increasing taxes for non-filers and revising real estate taxes. While these measures are steps towards broadening the tax base, more aggressive policies were anticipated to boost productivity and economic participation.

Digital and Infrastructure Investments

Allocations for digitization, automation, and increased focus on information technology are positive steps. However, experts argue that these investments will not yield the desired productivity and export gains without building appropriate human capital and infrastructure.

Environmental and Social Measures

The budget also addresses climate resilience, increases Benazir Income Support Programme (BISP) funding by 27%, and allocates significant resources for water resource development and SME support. These measures are seen as crucial for sustainable development and social welfare.

Conclusion

The initial reactions to the federal budget 2024-25 highlight a mix of cautious optimism and significant concerns. While some steps are praised for addressing long-standing issues, the strategy requires more concrete measures to ensure economic stability and growth. As Pakistan navigates these fiscal challenges, the effectiveness of these policies will be closely monitored.

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