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Pakistan’s Economic Roadmap FY24: Challenges and Opportunities for Sustainable Growth By Kashif Mirza


Jun 13, 2024

The writer is an

economist, anchor,

analyst and the

President of All

 Pakistan Private

Schools’ Federation



Pakistan has set a challenging tax revenue target of 13 trillion rupees ($46.66 billion) for the year starting July 1, a near 40% jump from the current year, in its national budget that looked to strengthen the case for a new bailout deal with the International Monetary Fund (IMF). The upcoming year’s growth target has been set at 3.6% and inflation is projected at 12%. The ambitious revenue targets for the fiscal year through June 2025, were presented by Finance Minister Muhammad Aurangzeb in parliament. Total spending was 18.87 trillion rupees ($68 billion). The upcoming fiscal year includes bringing the public debt-to-GDP ratio to sustainable levels and prioritising improvements in Pakistan’s balance of payments position. Pakistan has projected a sharp drop in its fiscal deficit for the new financial year to 5.9% of GDP, from an upwardly revised estimate of 7.4% for the current year. Pakistan will look to widen the tax base Whereas, Pakistan’s Economic Survey FY24, provides a detailed overview of the country’s economic performance during the fiscal year 2023-24. The survey highlights the challenges faced by the economy and outlines the government’s strategy to address them. The survey reports a real GDP growth rate of 2.38% for FY24, reversing the negative growth of FY23. This growth is attributed to prudent policy management, resumed inflows from partners, and recovery in major trading partners. The growth momentum is expected to continue, with a target of 5.5% growth by FY27. Interestingly, The agriculture sector emerged as the key driver of economic growth, with a growth rate of 6.25% in FY24. The industrial sector grew by 1.21%, while the services sector experienced a moderate growth of 1.21%. The agriculture sector’s performance is attributed to favourable weather conditions, improved crop yields, and increased investment in the sector. GDP at current market prices increased by 26.4% to PKR 106,045 billion in FY24, up from PKR 83,875 billion last year. This significant increase is attributed to improved economic activity, increased investment, and a stable exchange rate. Per capita income rose by USD 129 to USD 1,680, due to increased economic activity and exchange rate appreciation. This positive trend is expected to continue, with a target of increasing per capita income to USD 2,000 by FY27. Whereas, the investment-to-GDP ratio fell to 13.14% in FY24 from 14.13% in FY23, mainly due to contractionary macroeconomic policies and political uncertainty. A Focus on Revenue and Expenditure is equally important, as the budget proposals for FY25 focus on increasing revenue, reducing expenditure, and promoting economic growth. The budget has a significant increase in tax burden this year, because of the large informal segment of the economy, the burden will fall on the existing sectors and the tax burden will have an inflationary impact as well. The central bank warned of possible inflationary effects from the budget, saying limited progress in structural reforms to broaden the tax base meant increased revenue must come from hiking taxes. The bank, in a bid to boost growth, cut interest rates for the first time in four years, slashing them by 150 basis points, in the face of a sharp decline in inflation from a high of 38% last year to 11.8% in May. GDP would expand 2.4% in the current year, missing the budgeted target of 3.5%, the government said, despite revenues rising 30% on the year, and the fiscal and current account deficits being under control. However, the saving-to-GDP ratio remained stable at 13.0% in FY24, slightly down from 13.2% in FY23. Although, the government aims to stabilize the economy by prioritizing exports and investment, with a goal of achieving 5.5% growth by FY27. But the strategies need to include increasing trade and investment openness, controlling foreign exchange speculation, and implementing sector-specific reforms. However, challenges remain, including a high fiscal deficit, low tax revenues, and a large trade deficit. The proceeds from privatisation given the government’s stated policy of pushing hard to sell loss-making enterprises, starting with its national airline. But privatisation proceeds were projected at a modest 30 billion rupees. Key proposals include: Increasing FBR taxes by 47.1% to PKR 13 trillion; Introducing a new tax regime for the agriculture sector; Imposing an 18% sales tax on mobile phones; and Increasing the federal excise duty on cement by PKR 1,000 per ton; Introducing a new tax regime for the real estate sector. 

The government must undertake deep structural reforms, effectively control expenditure, mobilise tax resources, encourage private investment, and, avoid temptation to improve the economy at a fast pace.

On one side, Pakistan’s Economic Survey FY24 highlights the challenges faced by the economy and outlines the government’s strategy to address them, and on the other side budget proposals for FY25 aim to increase revenue, reduce expenditure, and promote economic growth. While the survey and budget proposals should provide a coordinated positive outlook, their implementation remains a challenge. The reduction in policy rate by 150bps is a positive step towards promoting economic growth. The appreciation of PKR by 2.8% against the US dollar is also a positive sign. However, the current account deficit, though narrowed, remains a concern. The decline in remittances and the increase in the trade deficit are also worrisome. Overall, the survey and budget proposals provide a mixed bag of positives and negatives. While the government’s efforts to promote economic growth are commendable, the challenges facing the economy cannot be ignored. The successful implementation of the budget proposals and the achievement of the economic growth targets remain a challenge. To address the challenges facing the economy, the government must: Implement policies to increase investment and savings; Improve tax revenues and reduce the fiscal deficit; Promote exports and reduce the trade deficit; Invest in human development and infrastructure; and Improve the business environment and reduce corruption. By implementing these policies, Pakistan can achieve sustainable economic growth, reduce poverty and inequality, and improve the standard of living for its citizens. Pakistan’s Economic Survey FY24 provides a comprehensive overview of the country’s economic performance and outlines the government’s strategy to address the challenges facing the economy. The budget proposals for FY25 aim to increase revenue, reduce expenditure, and promote economic growth. While the survey and budget proposals provide a positive outlook, their implementation remains a challenge. Pakistan had to find ways to increase its revenues to reduce its fiscal deficit as part of reforms being discussed with the IMF. Pakistan is in talks with the lender for a loan of $6 billion to $8 billion, as it seeks to avert a default for an economy growing at the slowest pace in the region. The rise in the tax target is made up of a 48% increase in direct taxes and a 35% hike in indirect taxes over revised estimates of the current year. Non-tax revenue, including petroleum levies, is seen increasing by a whopping 64%. Concerns remain about the government’s ability to pursue reform since it is vulnerable to the quirks of coalition politics in the face of rising public pressure against inflationary reform measures. The government of Prime Minister Shehbaz Sharif had to convince its largest ally, the Pakistan Peoples Party (PPP), without whom it does not have a parliamentary majority, to attend the budget session.

Pakistan’s public debt — both domestic and foreign — has soared like anything in recent years to Rs67.5 trillion on government borrowing needed to finance its surging budget deficit. The State Bank data for March shows that public debt is almost three-quarters of the nation’s economic output and just above 83 per cent of the total national debt of nearly Rs81tr. The IMF’s key demands include an increase in the tax revenue target, withdrawal of subsidies, taxes on the agriculture sector, increase in levy and taxes on power, gas and oil sectors, privatisation of sick government organisations and units and improving administration. It’s expected that the budget would be in line with IMF requirements, however, the real problem will be adherence to fiscal austerity and prudence and containment of populism. The strong 6.25 per cent expansion in the agriculture sector to be the highest in 19 years — drove Pakistan’s GDP growth by an expected 2.38pc in FY2024, recovering from a contraction of 0.21pc in the previous year. The fiscal discipline was maintained, with a fiscal deficit of 3.7pc of GDP and a primary surplus of 1.5pc of GDP. Total revenues, meanwhile, grew by 41pc, driven by non-tax revenues and improved tax collection. The major burden of debt payments comes from domestic debt of Rs 43.43tr. Domestic debt is almost two-thirds of the total public debt and accounts for nearly 85pc of the interest burden owing to the high interest rate environment in the country. We are in a debt trap, as our debt is already 80pc of the GDP, compelling the government to accumulate more debt to repay the existing loans. The high degree of indebtedness has made Pakistan more vulnerable even to the slightest of economic shocks and forced the government to reduce socio-economic development investments to alleviate poverty. The fiscal deficit and high indebtedness of a sovereign slow down economic growth and fuel inflation and unemployment. The cost of debt repayments is largely borne by citizens in the form of heavy indirect taxes, such as the taxes and levies on petrol. If Pakistan’s debt is sustainable, it is only so at a huge human cost. This is not sustainable and we are getting deeper into the trap. The external debt has largely been used to support government consumption rather than expand public investment and boost productivity. Poor export performance over the decades too has weakened our capacity to service the debt through our own earnings despite significant growth in remittances. Then, foreign investors are also not prepared to venture into Pakistan due to economic conditions which constrain our capability to rake up non-debt-creating international flows. On top of that, no one is ready now to give us more money so we can pay off our old debt as our capacity to leverage our geopolitical position has weakened. Privatisation of state-owned enterprises and withdrawal of subsidies will provide temporary relief, but our need for more debt will not go away without taking care of our tax and energy sector issues. The State Bank of Pakistan, meanwhile, kept a tight monetary policy, with a 22pc policy rate, helping to ease inflation to 26pc from 28.2pc last year. The current account deficit narrowed by 87.5pc to $0.5 billion compared to $4.1bn last year, and gross foreign exchange reserves increased to $8.0bn. However, a decline in the investment-to-GDP ratio, sluggish large-scale manufacturing, and high public debt are also noted. The cash-strapped Pakistan witnessed the highest-ever single-year increase in tax exemptions or concessions, surging by 73.24pc compared to the previous year to dole out a record Rs3.879tr. There is a need for patience and extreme hard work, combined with homegrown corrective plans. The public must work together with institutions to achieve our economic goals, by stressing the importance of collaboration and sustained efforts. We must emphasise the need for Pakistan to transition from a government-controlled economy to a market-driven economy, aligned with global standards, to boost exports and foster a savings-and-investment-based economy. We must shift from a government-determined economy to a market-driven economy, aligning our economic system with global standards, increasing exports, and promoting a savings-and-investment-based economy over a consumption-based one by considering equity and inclusion when implementing economic reforms with bold measures to ensure a more equitable economic system. Introducing economic reforms, we cannot ignore equity and inclusion. Bold measures are necessary to create a more inclusive economic system. The government must undertake deep structural reforms, effectively control expenditure, mobilise tax resources, encourage private investment, and, last but not least, avoid the temptation to improve the economy at a fast pace. The government must implement policies to address the challenges facing the economy and promote sustainable economic growth.

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