Finance Minister Ishaq Dar is set to present today’s federal budget for the 2023-24 fiscal year, with a proposed allocation of Rs14.7 trillion. With an anticipated consolidated budget deficit surpassing 6% of GDP, the budget will also allocate funds for various targeted schemes to attract voters for the upcoming general elections.
The Federal Board of Revenue’s (FBR) tax collection target is pegged at Rs 9.2 trillion, alongside a non-tax revenue target of Rs 2.7 trillion. The latter involves an amendment to the finance bill to raise the petroleum development levy (PDL) from Rs50 to Rs55-60 per litre to collect Rs870 billion in the next budget, significantly higher than the revised estimates of Rs550 billion for the previous fiscal year.
The budgetary figures’ credibility might be questioned as they vary throughout the financial year. The new government will likely introduce a mini-budget, should there be one post-elections, to align economic realities with the International Monetary Fund (IMF) requirements for a new bailout package.
Dar will face challenges satisfying the IMF regarding the resumption of the suspended program, as the continuing stalemate could risk the declining foreign exchange reserves, which have already fallen below $3.9 billion.
Fulfilling three conditions—securing external financing of $6 billion, aligning the next budget with IMF guidelines, and ensuring a market-based exchange rate—will be crucial to finalize a staff-level agreement with the IMF.
Dar has clarified that the IMF program, expiring on June 30, will not receive any further extension. This reinforces the need for a realistic budget for the next fiscal year, given the credibility concerns around frequent changes in budgetary figures.
Despite its tenure ending on August 12, the Pakistan Democratic Movement (PDM)-led government has approved an allocation of Rs90 billion for the SDGs Achievement Programme (SAP) for the next budget.
The government’s priority will be meeting the external debt servicing requirements of $25 billion in the next budget, a daunting task considering it secured just under $8.1 billion in the first ten months of the current fiscal year out of the total budgeted figure of $22.8 billion in external loans and grants.
The government’s total net revenue receipts will fall short in meeting debt servicing needs, with a deficit of Rs1,000 billion after considering nontax revenue and resource transfers to provinces. All other expenses will be financed through borrowing, including defense, salaries, pensions, civil government operations, subsidies, public sector enterprise grants, and others.
The government aims to increase salaries, pensions, and minimum wages in the FY24 budget but must secure between Rs7,000 to Rs7,500 billion in domestic and foreign loans to finance the deficit. Structural reforms will be necessary to navigate these complex economic challenges.
