The Pakistani National Assembly has Approved the Budget for The Fiscal Year 2024-25, laden with a slew of new taxes, as the country seeks to secure a crucial bailout from the International Monetary Fund (IMF) to avert a looming debt default. The economy is currently growing at the slowest pace in South Asia.
Presented just two weeks ago, the tax-heavy budget has drawn sharp criticism from opposition parties, including the Pakistan Tehreek-e-Insaf (PTI) led by the currently incarcerated former Prime Minister Imran Khan, as well as the ruling coalition’s ally, the Pakistan Peoples Party (PPP). Opposition parties argue the budget will be highly inflationary and further burden the already struggling masses.
Finance Minister Muhammad Aurangzeb introduced the finance bill in parliament, opening it for amendments and debate by the ruling alliance led by Prime Minister Shehbaz Sharif and the opposition. Despite initial reservations, the PPP, a key coalition partner, decided to vote for the budget, stating that not doing so would destabilize the government and the country.
The government’s tax revenue target for the next fiscal year is set at a challenging Rs 13 trillion, a staggering 40% increase from the current year. This includes a 48% hike in direct taxes and a 35% rise in indirect taxes. Taxes on textile and leather products, as well as mobile phones, will increase, and more direct taxes will be imposed on workers’ incomes.
The government has projected a sharp drop in the fiscal deficit for the new financial year, aiming to reduce it to 5.9% of GDP from the current year’s revised 7.4%. However, the central bank has warned of potential inflationary effects from the budget, given the limited progress in structural reforms to broaden the tax base.
The upcoming fiscal year’s growth target is set at 3.6%, with inflation projected to reach 12%. These ambitious targets come as Pakistan grapples with a severe economic crisis, exacerbated by last year’s devastating floods and the lingering effects of the COVID-19 pandemic.
Passing the finance bill sets the stage for further negotiations with the IMF, as the government seeks a bailout loan of $6 billion to $8 billion to avert a debt default. The success of these talks and the implementation of the government’s fiscal measures will be crucial in determining the country’s economic trajectory in the coming years.
The decision to push through the tax-heavy budget, despite opposition criticism, reflects the government’s determination to secure IMF support and stabilize the economy. However, these measures will undoubtedly burden the already struggling Pakistani people, raising concerns about the social and political implications of the government’s economic policies.
