Presenting the federal budget for Fy2023-24, Finance Minister Ishaq Dar announced a 17.5% increase in the pension of government employees.
Unveiling the budget for FY24, the finance minister said “The next fiscal year’s budget will not be an election year budget. It is a fiscally responsible budget,” he said, adding as a precursor that no independent analyst could say otherwise. He stated that the next fiscal year’s budget was made targeting GDP growth of 3.5%.
Dar has claimed that no new tax is being imposed next year to provide maximum relief to the people. He did, however, add that 10% tax was going to be imposed on listed and unlisted companies issuing bonus shares.
Speaking about development projects and goals, Dar explained that in 2017-18 the federal development budget was allocated Rs1.1 trillion and until this fiscal year, such a huge amount has not been earmarked for uplift projects. However, a technical review of Pakistan’s public sector development portfolio by the International Monetary Fund (IMF) found that the Public Sector Development Programme (PSDP) has become “unaffordable” due to limited fiscal space. For FY2023-24, according to the newly revealed budget, 2.6% of the country’s GDP, amounting to Rs2,709 billion will be allocated to PSDP projects for both federal and provincial spending.
He also said the previous government took steps that went against the IMF programme. “Such steps not only pushed up the country’s fiscal deficit but also resulted in worsening of relations with the International Monetary Fund (IMF).”
“We have taken difficult economic steps, which helped Pakistan avert debt default,” Dar said.
“Immediately after coming to power, we tried to restore the IMF programme,” he said.
The minister said that owing to the rupee devaluation and an increase in the SBP’s policy rate, people faced problems, but “we sacrificed our political gains for improving the economy.”
Referring to circular debt, Dar said it increased Rs329 billion per annum during PTI’s rule.
He stated that the government has set Rs9.2 trillion as its target for FBR tax collection where the inflation is set to remain at 21 per cent.
Dar said that the government expected the economy to grow by 3.5 per cent whereas the target for exports in the next fiscal year was $30 billion.
He said that the overseas Pakistanis send remittances equal to 90 per cent of Pakistan’s exports. The government expects them to send $33 billion in FY24.
He said that the tax on overseas Pakistanis for investment in immovable property is proposed to be removed. They would also be provided fast-track immigration facility at the airports.
Dar said that Rs2,709 billion has been allocated to the Public Sector Development Programme (PSDP) for federal and provincial governments whereas Rs1,804b has been allocated for the defence budget.
He said that the customs duty on raw material for batteries, solar panels and invertors is removed, adding that Rs450 billion being allocated under BISP for FY2024.
Dar said that IT and IT-enabled service providers can spend 1 per cent of their export proceeds on importing software and hardware without any duties up to $50,000 per annum.
“IT is being given the status of SMEs, which will have to pay fewer taxes. The government is bringing down sales tax to 5% from 15% for IT services,” he added.
A draft of the federal budget with over Rs6 trillion deficit was prepared and presented to the cabinet for its approval.
The cabinet approved a 30% increase in the salaries of government employees. It has also proposed raising the minimum wage to Rs30,000 per month.
Earlier today, the prime minister addressed a meeting of the federal cabinet prior to the presentation of the budget for the financial year 2024 (FY24) and said that at a time when people are reeling from inflation, salaries of the workforce should be increased. At the same time, pensions should also be raised.
Some analysts said the budget was unlikely to impress the IMF. “It is a plain vanilla budget with no path to structural reforms,” said Shahbaz Ashraf, chief investment officer at Karachi-based investment firm FRIM Ventures.
On Thursday, the IMF had said it has been discussing the budget with Pakistan with a focus on balancing debt sustainability while creating space to increase social spending.
Mustafa Pasha, chief investment officer at Lakson Investments, said the IMF would likely ask for more measures around revenue collection.
“The budget is unlikely to improve chances of a staff level agreement (with the IMF) in June,” he said.
Watched by IMF, Pakistan to present budget amid crises
The government’s annual budget will need to satisfy the International Monetary Fund (IMF) to have any chance of securing the release of more bailout money, with the crisis-riven country due to hold elections by November.
The risk of default on sovereign debt is rising, with the economy creaking under twin deficits and record high inflation, which has further dented the popularity of Prime Minister Shehbaz Sharif’s coalition ahead of the vote.
PM Shehbaz’s government is hoping to persuade the IMF to unlock at least some of the $2.5 billion left in a $6.5 billion programme that Pakistan entered in 2019 and which expires at the end of this month.
“The focus of discussions over the FY24 budget is to balance the need to strengthen debt sustainability prospects while creating space to increase social spending,” Esther Perez Ruiz, the IMF’s resident representative for Pakistan, said on Thursday.
Pakistan missed almost all of its economic targets set in the last budget, most notably its growth target, which was initially set at 5%, revised down to 2% earlier this year. Growth is now projected to be just 0.29% for the fiscal year ending June 30.
Foreign exchange reserves have dipped below $4 billion, according to data released by the central bank on Thursday, enough to cover barely a month of imports.
The government has no fiscal space to introduce popular measures that will win it votes or a stimulus to spur flagging economic activity, with limited avenues for raising revenue in the short term and domestic and international debt obligations continuing to mount.
Additional reporting by Reuters
This will be updated…