The federal budget for fiscal year 2024-25 came with a slew of new taxes that exposed the people of Pakistan to more hardships, highlighting the inefficient economic policies of successive governments.
According to budget documents, its total outlay of Rs. 18,800 billion has a deficit of Rs. 8,500 billion, requiring further borrowing to manage it. This is despite a 38% hike to the tax collection target, set at Rs. 13 trillion, which observers predict would be difficult to achieve.
Amidst this situation, it is easy to adopt a cynical approach toward the country’s economy, but credit must be given to the country making significant progress in reducing poverty between 2001 and 2018. Unfortunately, the process stalled at that point, as the country reckoned with persistent fiscal and current-account deficits, protectionist trade policies, unproductive agriculture, a difficult business environment, a heavy state presence in the economy, and a financially unsustainable energy sector. The COVID-19 pandemic played its own role, as did the devastating 2022 floods, with the lower-middle income poverty rate estimated at 40.1% for 2023-24, virtually the same as 2018. In that time, population growth has seen 7 million more Pakistanis fall below the poverty line, with portends of the trend continuing in the near future.
Experts maintain overcoming the prevailing risks requires adherence to sound overall economic management and boosting of market sentiment through a clear strategy for economic recovery; constrained fiscal expenditures; and careful targeting of any new expenditures. Additionally, a tight monetary stance and flexible exchange rate must be maintained and critical structural reforms must be strictly implemented particularly in the energy sector. To be clear, economic growth cannot be achieved if the debt burden continues to rise, having already crossed the tax-to-GDP ratio of 58% mandated by the Fiscal Responsibility and Debt Limitation Act. The solution does not lie in seeking temporary relief through excessive borrowing, but rather sustained reforms that would, unfortunately, prove punishing to the general public already burdened by inflation and high taxes.