IMF bailout beats populism in tax-heavy Rs18.9tr Budget 2024-25

• Govts eonomic performance remained "impressive": FinMin.
• FBR collection target set at Rs12,970 billion, says Aurangzeb.
• Budget proposes to hike minimum wage Rs 36,000.
  

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Finance Minister Muhammad Aurangzeb, in his debut budget 2024-25 speech on the floor of the National Assembly, only confirmed that a long-term loan deal with the International Monetary Fund (IMF) to bail out Pakistan’s economy outweighs the relief direly needed by the inflation-broken masses, whose incomes have hit rock-bottom in recent years.

Torn between fears of losing popularity, ensuring economic stability, and riding out sticky slugflation, the Pakistan Muslim League-Nawaz (PML-N)-led coalition government seems to be on its knees before the IMF to get the next bailout going.

This year’s budget, much like the previous one, is generally viewed as being micro-tailored to meet the IMF requirements to secure the bailout.

Aurangzeb, a first-time finance minister, unveiled the budget in the National Assembly amid a noisy protest by the opposition lawmakers belonging to Pakistan Tehreek-e-Insaf (PTI)-backed Sunni Ittehad Council — who stood on their desks, raised anti-government slogans and tore the copies of the Finance Bill 2025. 

The opposition members chanted, "go Nawaz go" during the session.

"Despite the financial and political challenges during the past one year, the government’s progress on the economic front has been impressive," the finance minister said in his opening remarks.

"We have heard the talk of all political parties to sit together in the country’s interest several times. Today, the nature has provided Pakistan with another chance to walk on the path of economic progress and we can’t afford to waste this opportunity," he said while requesting all the MNAs to cooperate with the government putting the country on the path of progress. 

“A while ago, Pakistan’s economy faced a difficult situation as the State Bank's reserves were enough for only less than two weeks of imports. The value of the rupee depreciated by 40%, economic progress was almost nil, and inflation had reached a level that the people were going below the poverty line at a fast pace. Coming out of this situation seemed difficult,” said the minister.

He also praised the previous government for striking a short-term standby agreement with the IMF, which he said paved the way for economic stability and ended uncertainty "at a point when the previous IMF programme was about to end and reaching agreement on new [IMF] programme was uncertain".

GDP

The finance minister said the GDP growth rate is expected to remain 3.6%, in the next fiscal year while the inflation is expected to come down to 12%.

He said the budget deficit is 6.9% of the GDP and the primary surplus to remain at 1% of the GDP.

The tax collection by the Federal Board of Revenue (FBR) is estimated at Rs12,970 billion which is 38% more than the current fiscal year.

Therefore, the province’s share in the federal tax collection will be Rs7,438 billion.

The federal government has set a non-revenue target at Rs3,587 billion, while the Centre’s net income is Rs9,119 billion, the finance minister said adding that total federal expenditures have been estimated at Rs18,877 billion of Rs9775 billion will be spent on interest payments.

“PM Shehbaz-led coalition government deserves felicitations for untiring efforts for the revival of the economy,” he added.

Aurangzeb further stated that inflation, which was the centre of attention of Prime Minister Shehbaz Sharif and his team, came down to almost 12% in May leading to a decrease in the prices of essential commodities.

"It is not an ordinary achievement in the light of existing challenges," he said, predicting further drop in inflation. The minister further stated that the foreign exchange reserves have also been stable.

He said that the recent cut in the interest rate by the SBP was proof of the government’s efforts to bring down inflation.

Key takeaways

• Targets 3.6% economic growth for FY2024-25
• Fiscal deficit seen at 6.9% of GDP for FY2024-25
• Total spending estimated to be Rs18.9 trillion ($67.84 billion) in FY2024-25
• Expects debt servicing of 9.8 trillion rupees in FY2024-25
• Defence expenditure of 2.1 trillion rupees expected in FY2024-25
• Pension payments seen at 1 trillion rupees in FY2024-25
• Total subsidies projected at 1.4 trillion rupees in FY2024-25

PSDP

FinMin Aurangzeb said that the Public Sector Development Programme (PSDP) plays a key role in the development, prosperity and social welfare of the country.

“This works as a catalyst for the modernisation, expansion, basic infrastructure and sustainable development,” he added.

The minister said that the government devised the history’s biggest PSDP for the fiscal year 2024-25, which is worth Rs1,500 billion.

He said that this volume is 101% bigger than last year’s revised volume.

Rs100 billion has been earmarked for the Pakistan Peoples Party’s (PPP)-projects, he said adding that the developmental budget was a display of the government’s commitment to deal with the challenges in the administration of affairs related to as infrastructure development, transportation, energy, IT and water resources, in these difficult times.

In the PSDP 2024-25, the completion of ongoing projects has been prioritised with up to 83% of resources allocated for the ongoing projects and only 17% of resources for new projects.

The minister said that the federal government is responsible for the basic infrastructure and a proposal for the allocation of 59% funds for this sector in the PSDP for the fiscal year 2024-25 has been made.

Meanwhile, allocating 20% of the developmental budget to the social sector has been proposed.

The minister said that it was a constitutional responsibility to ensure a balanced local development, that’s why, 10% of the funds have been reserved for the districts merged into Azad Jammu and Kashmir, Gilgit Baltistan and Khyber Pakhtunkhwa, while approximately 11.2% of resources have been earmarked for the IT, telecommunication, science and technology, governance and production sectors.

Aurangzeb said that projects prioritised in the PSDP meet the given standards under the the guidelines approved by the National Economic Council (NEC):

• The strategic and core projects that give special attention to the water resources, transportation, communications and energy sectors
• The projects based on foreign aid so that they get completed in due time
• Projects in all sectors on which more than 80% expenditure has been made and which can be completed within FY25 and provide financial and economic assistance to the economy

The minister said that new projects that support exports, boost production capabilities, promote competitiveness, expand the digital infrastructure, and focus on innovation-driven enterprises, industrial development, agro-industry and seed development, blue economy, science and technology, research, development and innovative reforms have been encouraged in the budget.

Moreover, efforts of equitable development, regional equity and sustainable development have also been included in the PSDP 2024-25.

“We acknowledge the key role played by the private sector in economic development as the basic stimulant of progress. We encourage the private sector investments and are ready to give our share in the private sector’s efforts through viability gap and arrangements,” Aurangzeb added.

He said that the budget also focuses on the transportation sector for the upgradation of the existing infrastructure to carry the increasing volume of traffic, improve the highways’ network, increasing the communication between big cities and other areas.

Moreover, efforts are being made to expand and modernise the country’s energy infrastructure, constructions of hydropower dams, installation of solar power plants and laying the transmission lines, so that efficient electricity distribution can be ensured and rising demand for power can be met.

Special attention will be given to water resource management through the construction of dams, irrigation system and drainage system network to ensure flood reduction and water supply for agriculture and domestic consumption.

The finance minister said that reserving a whopping Rs824 billion for the infrastructure development in the PSDP for the upcoming fiscal year has been proposed. This amount includes Rs253 billion for the energy sector, Rs79 billion for the transport and communication sector, Rs206 billion for the water sector and Rs86 billion for the planning and housing sector.

He said that Rs244 billion have been earmarked for the social sector, Rs75 billion for the special areas such as AJK and GB, Rs64 billion for the areas merged into KP, Rs79 billion for the science and IT sectors and Rs50 billion for the production sector.

Taxes

In his speech, the finance minister said that the Federal Board of Revenue (FBR) had imposed Corporate Income Tax reforms from 2019-2023. Now, he said, there's a need to impose personal tax reforms so that it can be bought in line with international standards.

Considering this, he said, the minimum tax slab will remain the same at Rs600,000 (annual income) and the maximum tax slab will also remain unchanged.

"There are some changes proposed in tax slabs. There's also a proposal of keep the maximum tax rate at 45% for non-slaried people," he added.

The finance minister, noting that the government was ready to support the export sector, said that it would now fall under the normal tax regime.

To increase tax collection from the real estate and securities sector, he said that irrespective of the holding period, a 15% tax would be imposed on filers and up to 45% on non-filers under different slabs. "This will help document the economy."

Moreover, he said, that different tax slabs would be introduced for filers, non-filers, and those who file their returns late on the purchase of immovable properties.

He also proposed that tax should be imposed on the rate of the car instead of its engine capacity. Aurangzeb said there's a proposal to end zero rating, exemptions, and reduced rates.

The finance minister said that the government took into account several exemptions and concessions, following which it was decided that some of them should end.

He also proposed that the taxes on TIER-I Retailers should be increased from 15% to 18%.

BISP

Aurangzeb said that Benazir Income Support Programme (BISP) possesses the status of a cornerstone of the country's social welfare measures from which millions of families receive cash assistance.

The incumbent coalition government aims to provide maximum assistance to the weak segments of the Pakistani society, he said. The financial aid of the weak segments will be continued under the BISP via the budget 2024-25, he added.

The finmin announced that the federal government decided 27% hike in the BISP allocations by up to Rs593 billion in the next fiscal year. 

The details of the BISP allocations in the budget are given below:

Kafalat programme: The number of individuals who are getting benefits from the social welfare programme will be increased from 9.3 million to 10 million. Subsequently, the cash assistance will also be hiked for protecting the deserving families from inflation impacts.

Benazir Taleemi Wazaif: The federal government decided to register 1 million more children from underprivileged families in the conditional cash transfer programme aimed at promoting education.

Benazir Nashonuma: The government will include 500,000 more families to the programme aim at providing nutritional support to mothers and children and stopping "stunting" of children during first 1,000 days after their birth.

BISP new programmes: For promoting economic inclusion and improving financial status of nationals, the federal government is going to launch a new proverty graduation and skills' development programme under the BISP's flag.

Additionally, the government also plans to introduce a hybrid social protection programme for promoting financial self-sufficiency.

Salaries and pensions

The finance minister said that the government would adopt a three-pronged strategy to reform the pension scheme in line with international best practices.

The minister said that the government had to pay unfunded pension liability, which was increasing every year. He said after reforms in the pension scheme, the pension liability would be reduced considerably in next three decades.

The minister said that for fresh employees, a contributory pension scheme would be introduced for which the government would deposit its share every month.

Moreover, a pension fund would be created to manage the liability, he added.

He also proposed a 20-25% increase in the salaries on ad-hoc basis and 15% enhancement in the pensions of the federal government employees, realising their financial hardships due to the increased inflation.

The minister said despite financial constraints, the government had decided to give 25% ad-hoc relief in the salaries of employees from Grade 1-16 and 20% to Grade-17-22 employees aimed at increasing their purchase power.

He also announced to increase the minimum wages from existing Rs32,000 to Rs 36,000 per month.

Climate change

During the speech, the finance czar also mentioned the steps being planned by the federal government to cope with the challenges emanating from climate change.

He said the government was reviving the Pakistan Climate Change Authority to ensure the implementation on “climate mitigation and adaption”.

The finance minister said National Finance Climate Strategy will be prepared by the November this year aimed at bringing Global Climate Finance into the country to implement projects to reduce carbon emissions in the country.

The minister further apprised the House that a national digital climate finance monitoring dashboard will also established to maintain data regarding climate data.

The federal government has fixed Rs4 billion for e-bikes and Rs2 billion for energy saving fans, he shared.

Graphics by Afreen Mirza.