The Pakistan government said on Monday it would present a “pro-investor” budget on June 9 to revive a stalled economy, create jobs and uplift the poor at a time of record inflation.
Millions of Pakistanis are struggling to cope as Pakistan’s annual inflation rate rose to 37.97% in May, setting a national record for the second month in a row and adding to the South Asian nation’s problems of a balance of payment crisis and the risk of a sovereign default. Inflation has been on an upward trend since early this year after the government took painful measures as part of fiscal adjustments demanded by the IMF to unlock stalled funding.
The IMF demands include the withdrawal of subsidies, a hike in energy prices, a market-based exchange rate and new taxation to generate extra revenue in a supplementary budget.
Islamabad says it has met the demands, but the IMF has yet to release the $1.1 billion funding stalled since November as part of the $6.5 billion Extended Fund Facility agreed in 2019.
The funding is critical for Pakistan to unlock other bilateral and multilateral financing.
The IMF program is set to expire on June 30 this year.
“We are going to present a pro-investor and pro-poor budget,” Bilal Azhar Kayani, the Prime Minister’s Coordinator for Economy and Energy, told Arab News. “The prime minister is personally overseeing all the budget preparations and has directed the authorities to ensure maximum relief for the public.”
Kayani declined to share the total outlay of the budget or its revenue and taxation targets, saying: “These details will be revealed in the National Assembly on the budget day.”
He said finance ministry officials, including Finance Minister Senator Ishaq Dar, were meeting all stakeholders, including industrialists and professionals, to get their input on the budget: “We will be trying to entertain proposals of all stakeholders to make an investor friendly budget.”
Economists said the country’s net federal receipts were not sufficient to even pay for the markup and the government had to take domestic and foreign loans to bear all expenditures.
“Pakistan’s budget is in serious distress and in need of serious repair,” Dr Khaqan Hassan Najeeb, a former economic adviser to the government, told Arab News.
He said that a look at the budget of FY-23 would reveal that Pakistan’s net federal receipts with the federal government would not be sufficient to even pay for the markup which had risen from the budgeted amount of Rs 3900 Billion to Rs 5300 Billion.
“It is unfortunate that all other expenditures would have to be borne by taking domestic and foreign loans,” he said, adding that the same fact would become even larger as the markup payment for the FY-24 budget would be much bigger considering the rise of the policy rate to 21 percent.
“The borrowing needs would be higher without meaningful expenditure and tax reforms,” Najeeb said. “Without containment of a fiscal deficit to near 5 percent of GDP on a permanent basis Pakistan’s fiscal and debt sustainability will never be ensured.”
The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) suggested the government ensure tax reforms in the country and add new taxpayers to boost revenue.
“The taxation system in Pakistan contributes less than 10 percent of the GDP to the national exchequer, indicating that it is not balanced, broad-based and simplified,” Irfan Iqbal Sheikh, President FPCCI, told Arab News.
The taxation system’s heavy reliance on indirect taxation and surcharges was damaging the economy, he said, adding that taxes were insufficient for debt servicing, defence, social welfare and public-sector development programs.
Sheikh said the upcoming federal budget was a golden opportunity for the government and the business community alike to agree upon and introduce budgetary measures and policies to enable industrial growth in Pakistan, explore avenues for import substitution and revive sick units through targeted, phased and result-oriented fiscal measures.
“Industrialization is the key to wealth creation and reversing the trend of dwindling per capita income in the country; bridge trade deficit and create employment in these difficult times,” he said.
“We can only have healthy foreign exchange reserves on a sustainable basis if our industry earns substantive sums in a number of industrial sectors like many of our regional and sub-regional countries.”
