ISLAMABAD: Finance Minister Ishaq Dar presented the federal budget 2023-24 for the fiscal year 2023-24, announcing a 17.5% rise in the pension of government employees.
During the budget reveal for FY24, the finance minister emphasized that this budget would not be tailored for election purposes but would rather prioritize fiscal responsibility. He stated that independent analysts would agree with this perspective. The budget aims to achieve a GDP growth rate of 3.5%.
Dar assured that no new taxes would be imposed in the upcoming year to provide maximum relief to the public. However, he mentioned that a 10% tax would be levied on listed and unlisted companies issuing bonus shares.
In terms of development projects, Dar highlighted that the federal development budget in 2017-18 was Rs1.1 trillion, which was unprecedented until this fiscal year. Nevertheless, a technical review by the International Monetary Fund (IMF) revealed that the Public Sector Development Programme (PSDP) had become financially unsustainable due to limited fiscal space. The newly unveiled budget allocates 2.6% of the country’s GDP, amounting to Rs2,709 billion, to the PSDP projects for federal and provincial expenditures.
Dar further commented on the previous government’s actions, which were not aligned with the IMF program. These steps not only escalated the fiscal deficit but also strained relations with the International Monetary Fund (IMF).
“We have implemented challenging economic measures that saved Pakistan from a debt default,” said Dar.
“As soon as we came into power, we made efforts to reinstate the IMF program,” he added.
The minister acknowledged that people faced difficulties due to the devaluation of the rupee and an increase in the State Bank of Pakistan’s policy rate. However, he stated that the government prioritized improving the economy over political gains.
Regarding circular debt, Dar revealed that it increased by Rs329 billion annually during the PTI’s tenure.
The government has set a target of Rs9.2 trillion for FBR tax collection, while the inflation rate is expected to remain at 21%. The government anticipates a 3.5% economic growth and aims for exports worth $30 billion in the next fiscal year. Moreover, the government expects overseas Pakistanis to send remittances amounting to $33 billion in FY24, equivalent to 90% of Pakistan’s exports.
The proposed changes include the removal of the tax on overseas Pakistanis for property investment and the provision of fast-track immigration facilities at airports.
Allocations of Rs2,709 billion for the Public Sector Development Programme (PSDP) for federal and provincial governments and Rs1,804 billion for the defense budget were also announced.
Additionally, the customs duty on raw materials for batteries, solar panels, and inverters has been eliminated. Rs450 billion has been allocated for the Benazir Income Support Program (BISP) in FY2024.
Dar also mentioned that IT and IT-enabled service providers can utilize 1% of their export proceeds, up to $50,000 annually, for importing software and hardware without any duties. IT has been granted the status of Small and Medium Enterprises (SMEs), resulting in reduced taxes. Sales tax for IT services has been reduced from 15% to 5%.
A draft of the federal budget with a deficit of over Rs6 trillion was presented to the cabinet for approval.
The cabinet approved a 30% salary increase for government employees and proposed raising the minimum wage to Rs30,000 per month.
Earlier today, prior to the budget presentation for FY24, the Prime Minister addressed a federal cabinet meeting, emphasizing the importance of increasing salaries and pensions for the workforce, particularly amidst inflationary pressures.
Some analysts have described the budget as a “plain vanilla” budget without a clear path for structural reforms. Shahbaz Ashraf, Chief Investment Officer at Karachi-based investment firm FRIM Ventures, expressed doubts about the budget’s ability to impress the IMF. The IMF has been engaging in discussions with Pakistan, focusing on balancing debt sustainability while creating room for increased social spending.
Mustafa Pasha, Chief Investment Officer at Lakson Investments, predicted that the IMF would likely request additional measures to enhance revenue collection. He believed that the budget’s chances of achieving a staff-level agreement with the IMF in June were unlikely.
Pakistan is set to present its annual budget amid ongoing crises and under the scrutiny of the IMF. The government’s ability to secure further bailout funds from the IMF depends on satisfying the organization’s requirements. With elections scheduled for November, the country faces the risk of default on sovereign debt. The economy is burdened with twin deficits and record-high inflation, which has negatively impacted the popularity of Prime Minister Shehbaz Sharif’s coalition.
The government hopes to convince the IMF to release a portion of the remaining $2.5 billion from a $6.5 billion program initiated in 2019, set to expire at the end of this month.
According to Esther Perez Ruiz, the IMF’s resident representative for Pakistan, the discussions regarding the FY24 budget primarily revolve around strengthening debt sustainability prospects while creating space for increased social spending. Pakistan struggled to meet most of its economic targets outlined in the previous budget, particularly the growth target, which was initially set at 5% but revised down to 2%. The projected growth for the current fiscal year is a mere 0.29%.
The country’s foreign exchange reserves have dipped below $4 billion, covering barely a month’s worth of imports. With limited avenues for raising revenue in the short term and mounting domestic and international debt obligations, the government faces constraints in introducing popular measures to stimulate economic activity or secure votes.
Download Budget 2023-24 PDF
budget-2023-24-rs1446-trillion-salary-pension-hike-no-new-taxes-key-initiativesPublished in PakWeb, June 9th, 2023.
Stay informed and engaged with the PakWeb by following us on Facebook, Twitter, and participating in our Discussion Forums.