Pakistan’s Budget 2024-25:
Balancing Economic Stability and Social Welfare Amidst IMF Negotiations
Introduction
In an environment of economic strain and political turbulence, Pakistan’s Finance Minister Muhammad Aurangzeb presented his inaugural budget for the fiscal year 2024-25. The budget, revealed in the National Assembly, is seen as a strategic attempt to align with the International Monetary Fund (IMF) requirements while addressing the nation’s pressing economic challenges. Despite the backdrop of political dissent and public dissatisfaction, the government aims to strike a balance between securing a vital IMF bailout and providing relief to the inflation-stricken populace.
Economic Performance and IMF Deal
Finance Minister Aurangzeb’s budget speech highlighted the government’s efforts to secure a long-term loan deal with the IMF, a move deemed crucial for stabilizing Pakistan’s economy. He acknowledged that while the IMF deal might overshadow immediate relief for the inflation-hit masses, it is necessary for long-term economic recovery.
“Torn between fears of losing popularity, ensuring economic stability, and riding out sticky slugflation, the Pakistan Muslim League-Nawaz (PML-N)-led coalition government seems to be on its knees before the IMF to get the next bailout going,” Aurangzeb noted, underscoring the dilemma faced by the government.
Opposition’s Response
The budget session witnessed significant uproar from opposition lawmakers, particularly from the Pakistan Tehreek-e-Insaf (PTI)-backed Sunni Ittehad Council. Protests included standing on desks, chanting anti-government slogans, and tearing copies of the Finance Bill 2025. The opposition’s vocal dissent, including chants of “go Nawaz go,” highlighted the contentious political environment in which the budget was presented.
Government’s Economic Achievements
Despite the challenges, Finance Minister Aurangzeb asserted that the government’s economic performance over the past year has been impressive. He pointed to improvements in key economic indicators and urged all political parties to collaborate for the nation’s progress.
“A while ago, Pakistan’s economy faced a difficult situation as the State Bank’s reserves were enough for only less than two weeks of imports. The value of the rupee depreciated by 40%, economic progress was almost nil, and inflation had reached a level that the people were going below the poverty line at a fast pace. Coming out of this situation seemed difficult,” Aurangzeb recounted, emphasizing the significant strides made since then.
Key Economic Targets
The budget sets ambitious targets for the next fiscal year. The GDP growth rate is projected to reach 3.6%, with inflation expected to drop to 12%. The budget deficit is estimated at 6.9% of GDP, and a primary surplus of 1% is anticipated. The Federal Board of Revenue (FBR) aims to collect Rs12,970 billion, marking a 38% increase from the current fiscal year.
Aurangzeb stated that the federal government’s share in tax collection would be Rs7,438 billion. He also set a non-revenue target at Rs3,587 billion, with the Centre’s net income projected at Rs9,119 billion. Total federal expenditures are estimated at Rs18,877 billion, with Rs9,775 billion allocated for interest payments.
Public Sector Development Programme (PSDP)
Aurangzeb emphasized the importance of the Public Sector Development Programme (PSDP) in driving the country’s development and social welfare. The government has devised the largest PSDP in history, worth Rs1,500 billion, representing a 101% increase from the previous year.
Key Allocations in PSDP
- Infrastructure Development: Rs824 billion, including Rs253 billion for energy, Rs79 billion for transport and communication, Rs206 billion for water, and Rs86 billion for planning and housing.
- Social Sector: Rs244 billion, with significant allocations for special areas like Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan (GB).
- Special Projects: Rs100 billion for Pakistan Peoples Party (PPP) projects.
The PSDP will focus on completing ongoing projects, with 83% of resources allocated to existing projects and 17% to new initiatives. Emphasis is placed on infrastructure development, proposing 59% of funds for basic infrastructure and 20% for the social sector. Additionally, 10% of the funds will be reserved for districts merged into AJK, GB, and Khyber Pakhtunkhwa.
Social Welfare: Benazir Income Support Programme (BISP)
The Benazir Income Support Programme (BISP) remains a cornerstone of Pakistan’s social welfare framework. The government has announced a 27% increase in BISP allocations, bringing the total to Rs593 billion for the next fiscal year.
Key Initiatives in BISP
- Kafalat Programme: Increasing beneficiaries from 9.3 million to 10 million.
- Benazir Taleemi Wazaif: Expanding to include an additional 1 million children.
- Benazir Nashonuma: Including 500,000 more families to support nutritional needs.
New BISP initiatives aim at promoting economic inclusion and financial stability, including a poverty graduation and skills development programme. A hybrid social protection programme is also planned to promote financial self-sufficiency among the most vulnerable populations.
Tax Reforms and Revenue Generation
The budget introduces several tax reforms aimed at increasing revenue and aligning with international standards. The minimum tax slab remains at Rs600,000 annual income, with the maximum tax rate for non-salaried individuals proposed at 45%.
Key Tax Reforms
- Real Estate and Securities: A 15% tax on filers and up to 45% on non-filers.
- Immovable Properties: New tax slabs for filers, non-filers, and late return filers.
- Vehicle Taxation: Taxes based on vehicle value rather than engine capacity.
- Retail Sector: Increasing taxes on TIER-I Retailers from 15% to 18%.
Aurangzeb emphasized the need for personal tax reforms, proposing changes to tax slabs and maintaining the maximum tax rate for non-salaried individuals at 45%. The export sector will also be integrated into the normal tax regime.
Salaries and Pensions
Recognizing the financial hardships faced by government employees, the budget proposes a 20-25% increase in salaries on an ad-hoc basis and a 15% increase in pensions. The minimum wage is set to rise from Rs32,000 to Rs36,000 per month. The government also plans to introduce a contributory pension scheme for new employees and create a pension fund to manage liabilities.
Pension Reforms
Aurangzeb detailed a three-pronged strategy to reform the pension scheme, aiming to reduce the unfunded pension liability and ensure sustainability over the next three decades. This includes introducing a contributory pension scheme for new employees and establishing a pension fund.
Climate Change Initiatives
The budget addresses climate change challenges, with plans to revive the Pakistan Climate Change Authority and prepare a National Finance Climate Strategy by November. The government aims to attract Global Climate Finance and establish a national digital climate finance monitoring dashboard. Allocations include Rs4 billion for e-bikes and Rs2 billion for energy-saving fans.
Key Climate Change Measures
- Pakistan Climate Change Authority: Ensuring implementation of mitigation and adaptation strategies.
- National Finance Climate Strategy: Aiming to bring global climate finance into Pakistan.
- Digital Climate Finance Monitoring Dashboard: Maintaining data on climate initiatives.
Conclusion
Pakistan’s budget for the fiscal year 2024-25 reflects a complex balancing act between meeting IMF requirements and addressing the economic needs of its citizens. Amidst political protests and economic uncertainties, the government has set ambitious targets for growth, revenue generation, and social welfare. Finance Minister Aurangzeb’s debut budget underscores the government’s commitment to navigating these challenges and steering the country towards stability and development.
Aurangzeb’s budget presentation underscores the government’s resolve to address pressing economic challenges while laying the groundwork for sustainable development and social welfare. By aligning with IMF requirements and implementing strategic reforms, Pakistan aims to achieve economic stability and improve the quality of life for its citizens in the coming fiscal year.