The Federal Budget for the fiscal year 2024-25, announced by the Government of Pakistan, sets ambitious targets and introduces significant measures to drive economic growth and manage fiscal challenges. This analytical article delves into the key highlights of the budget, evaluating its potential impacts on the economy, public finances, and various sectors.
The government has set an economic growth target of 3.6% for FY 2024-25, a modest yet realistic goal considering the global economic conditions and domestic challenges. However, the projected inflation rate of 12% poses a significant concern, indicating that the government will need to implement stringent monetary and fiscal policies to control rising prices and protect the purchasing power of the populace.
The total outlay of the budget for FY25 is Rs18.9 trillion, with gross revenue receipts expected at Rs17.8 trillion. This substantial outlay highlights the government’s commitment to public spending, yet it also underscores the need for robust revenue generation strategies to finance these expenditures. Non-bank borrowing is expected to reach Rs2.662 trillion, while bank borrowing is projected at Rs5.142 trillion, reflecting the government’s reliance on domestic borrowing to meet its fiscal needs. Additionally, Rs666 billion is earmarked for net external receipts, indicating a moderate dependence on foreign financing.
Privatization proceeds are expected to contribute Rs30 billion, a modest figure that suggests limited activity in the privatization domain. One of the most significant expenditures is the allocation of Rs9.775 trillion for interest payments, highlighting the heavy burden of debt servicing on the national budget. This large allocation for interest payments necessitates a focus on debt reduction strategies in the long term.
Pensions will consume Rs1.014 trillion, with a 15% increase in pensions for government employees, ensuring better financial security for retired personnel. The defense sector will receive Rs2.122 trillion, reflecting the government’s priority on national security. Grants and transfers to provinces are allocated Rs1.777 trillion, emphasizing the importance of provincial support in the federal fiscal framework.
Subsidies will account for Rs1.363 trillion, with a notable allocation of Rs65 billion for utility stores corporation and Rs10 billion for the Ramzan package, aimed at providing relief to the lower-income segments of society. Running of the civil government and emergency provision will consume Rs1.152 trillion, indicating a significant administrative expenditure.
The government has allocated Rs1.674 trillion for development and net lending, highlighting its commitment to infrastructure development and economic growth. The Federal Public Sector Development Programme (PSDP) is budgeted at Rs1.400 trillion, with Rs253 billion specifically allocated for the development of the energy sector, indicating a strategic focus on improving energy infrastructure.
Despite the substantial expenditures, the overall fiscal deficit is projected at Rs7.283 trillion, or 5.9% of GDP, down from the revised 7.4% of FY2023-24. This reduction reflects the government’s efforts to improve fiscal discipline. FBR taxes are envisaged at Rs12.97 trillion, around 40% higher than the outgoing fiscal year, highlighting an aggressive revenue collection target. Non-tax revenue is projected at Rs4.8 trillion, demonstrating the government’s focus on diversifying revenue sources.
The budget includes social welfare measures, such as increasing the allocation for the Benazir Income Support Programme (BISP) from Rs466 billion to Rs592 billion, ensuring enhanced support for the underprivileged. The minimum wage is proposed to be increased to Rs37,000, and there is a 25% salary increase for Grades 1 to 16 and 20% for Grades 17 to 22, reflecting the government’s commitment to improving the financial well-being of public sector employees.
On the taxation front, the budget introduces several measures, including the imposition of an extra Federal Excise Duty (FED) of Rs1,000 per ton on cement, bringing the total FED to Rs3,000 per ton, and the removal of GST exemption for the FATA/PATA region. Sales tax for point-of-sale (POS) retailers dealing in leather and textile products has been increased from 15% to 18%, and the maximum limit for the petroleum levy on petrol and diesel has been enhanced to Rs80 per litre. Custom duties exemptions on CBU imports of hybrid vehicles and concessions on imports of electric vehicles valued over USD 50,000 are withdrawn, indicating a shift towards increasing revenue from the automotive sector.
The budget also proposes the introduction of a ‘National Fiscal Pact’ with all provinces and a new category of ‘Late Filers’ in the income tax law under the Finance Bill 2024, aimed at improving tax compliance and fiscal coordination.
In conclusion, the Federal Budget 2024-25 outlines a comprehensive plan to drive economic growth, enhance social welfare, and ensure fiscal responsibility. While the ambitious targets and substantial allocations reflect the government’s commitment to development, the success of these measures will depend on effective implementation and prudent fiscal management. The focus on increasing revenue through aggressive tax targets and the removal of exemptions indicates a move towards a more sustainable fiscal framework.
