There is hope that the announcement of the budget for the upcoming year won’t be postponed past June 12 due to the National Economic Council’s constitution, which requires it to study and approve the macroeconomic budgetary framework as well as proposed federal and provincial development expenditure plans for 2024–25.
The announcement’s delay has been unexpected, if not confusing, given that the Annual Plan Coordination Committee solidified its macro targets for FY25 at the beginning of this month. It seems that it was done to help Prime Minister Shehbaz Sharif go through with his travel to China, which left many wondering what the purpose of the trip was right before the budget was announced. The visit, according to rumors, was made in order to meet program objectives and budget targets set by the IMF regarding Chinese debt and power purchase agreements with Chinese enterprises. It would be an understatement to say that the administration has great challenges in creating its budget. Despite the recent economic stability brought about by the IMF’s short-term SBA facility, the current macroeconomic situation is likely the most challenging one that any nation has encountered in a long time. The macroeconomic environment is still susceptible to even the smallest shock.
The political landscape is also difficult. One the one hand, the government’s overwhelming majority in parliament has been taken away from it, at least temporarily, by a court ruling. Conversely, it needs to strike a balance between the public’s expectations of relief and the strict demands of the IMF. The finance managers, stuck in a difficult situation, have kept telling the populace that the wealthy would bear the brunt of any “adjustments” that had to be made to the budget as part of a deal with the IMF.
However, given the strict IMF requirements that would need sharp increases in direct and indirect taxes, the removal of subsidies in the upcoming budget, and a sharp rise in energy costs at the start of FY25 in order to be eligible for a fresh bailout, not many people have faith in such promises.
The fiscal priorities of the government are evident in this context: economic stabilization through limiting the balance-of-payments current account deficit and lowering the need for borrowing through primary budget surplus and budget deficit. Stabilization is essential for Pakistan to achieve debt sustainability by closing the gap between its income and spending by raising more tax revenue and reducing public spending, as well as to make its external debt payments on time and replenish its declining foreign exchange reserves to a safe level. Obviously, in order to achieve these aims, significant policy changes are needed. The finance minister and prime minister have repeatedly stated that they are committed to implementing the necessary structural changes as part of the new IMF program. Their first test will be the budget for the upcoming year. Many doubt that they will be able to translate their statements into clearly defined budgetary actions. Will they disprove those who doubted them?
