ISLAMABAD: On Friday, Pakistan’s National Assembly approved the annual budget for the Fiscal Year 2024-25, a critical step as the country prepares for further discussions with the International Monetary Fund (IMF) on a new financial assistance program. The budget, heavily focused on tax increases, comes as Pakistan anticipates inflation rates as high as 13.5% for June.
The finance bill, presented by Finance Minister Muhammad Aurangzeb, aims to secure a loan between $6 billion and $8 billion from the IMF to prevent a potential debt default for Pakistan, currently the slowest-growing economy in South Asia. The bill’s passage saw Pakistan’s sovereign dollar bonds decline, with the 2031 maturity dropping 1.4 cents to 78.69 cents on the dollar, according to Tradeweb data.
The government unveiled the national budget on June 12, setting an ambitious tax revenue target of Rs13 trillion ($46.66 billion) for the year starting July 1. This target represents a 40% increase from the current year, aimed at bolstering the country’s case for an IMF rescue package.
A finance ministry report released on Friday described the budget as a pathway to sustainable and inclusive growth. The report projected consumer price inflation for June 2024 to range between 12.5% and 13.5%, up from 11.8% in May. It also highlighted various administrative, policy, and relief measures the government is implementing to control inflationary pressures.
The budget includes significant increases in both direct and indirect taxes, with direct taxes rising by 48% and indirect taxes by 35% over revised estimates of the current year. Non-tax revenue, including petroleum levies, is expected to surge by 64%. Specific tax hikes include an 18% increase on textile and leather products and mobile phones, as well as higher taxes on capital gains from real estate. Workers will also face higher direct taxes on income.
Opposition parties, particularly those supported by jailed former Prime Minister Imran Khan, have condemned the budget, arguing it will exacerbate inflation. The government, however, projects a sharp reduction in the fiscal deficit for the upcoming financial year to 5.9% of GDP, down from a revised estimate of 7.4% for the current year.
The State Bank of Pakistan has warned of potential inflationary effects from the budget, citing the need for structural reforms to broaden the tax base and noting that increased revenue will primarily come from higher taxes. The government has set a growth target of 3.6% for the upcoming year, with inflation projected at 12%.
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