Starting today, Pakistan’s new $67.76 billion budget for the fiscal year takes effect. The government hopes this budget will help secure another bailout package from the International Monetary Fund (IMF) to avoid a major economic crisis.
Approval and Immediate Effect
On Sunday, President Asif Ali Zardari signed the Finance Bill 2024-25 into law after parliament approved it last week. The country is also preparing for more talks with the IMF for a loan of up to $8 billion to prevent a debt default. Pakistan is currently the slowest-growing economy in South Asia and faces high inflation, projected to be up to 13.5 percent for June.
Tax Revenue Target and Reactions
The new budget aims to collect Rs13 trillion ($46.66 billion) in taxes, nearly 40 percent more than last year. This goal has upset both government allies and opposition members, who want relief for salaried workers and the poor. The business community is also unhappy with the higher tax targets.
Government’s Positive Outlook
Finance Minister Muhammad Aurangzeb said on Sunday that Pakistan is moving in a positive direction and hopes to reach a good agreement with the IMF in July. Pakistan began talking to the IMF about a new loan after finishing a $3 billion program last year that helped prevent a debt default. However, recent negotiations in May did not result in an agreement.
Economic Challenges and IMF Loans
Pakistan has needed IMF loans in recent years due to various economic problems, such as large fiscal deficits, low foreign exchange reserves, and high public debt. These issues have been worsened by fluctuating commodity prices, political instability, and inconsistent policies.
Necessity of the New Bailout
The government claims the economy is improving but believes a new IMF bailout is necessary for financial stability.
Tax-Heavy Budget
Budget Goals and Inflation Predictions
According to a report from Pakistan’s finance ministry on Friday, the budget aims to set the country on a path of sustainable growth. It predicts inflation will rise to between 12.5 and 13.5 percent in June 2024, up from 11.8 percent in May.
Increased Tax Targets
The higher tax target includes a 48 percent increase in direct taxes and a 35 percent increase in indirect taxes. Non-tax revenue, such as petroleum levies, is expected to rise by 64 percent.
Specific Tax Increases
The budget includes higher taxes on textile and leather products, mobile phones, and capital gains from real estate. Workers will face more direct taxes on income. Opposition parties and trade bodies have criticized the budget, saying it will cause high inflation and lead to industry shutdowns.
Central Bank’s Warning
The central bank also warned that the budget could increase inflation, as the country still needs significant reforms to broaden the tax base. For the upcoming year, the government has set a growth target of 3.6 percent and expects inflation to be around 12 percent.
