Though Pakistan’s fiscal imbalances have been persisting since its inception, yet no serious efforts are yet in the offing to remedy the situation and remove the causes, inbuilt in the elitist structure of economy.
Consequently, successive governments have found it convenient to seek deposits from “friendly countries” to avert default on external front, prompting global lenders to impose stringent conditions for fresh borrowings and bailouts.
Unfortunately, Pakistan’s fiscal policy shenanigans often involve deceptive accounting and selective reporting to present a rosier outlook of economy.
For instance, in fiscal year (FY) 2020, during the tenure of Pakistan Tehreek-e-Insaf, our GDP growth was minus (-)1.3%.
However, following National Accounts Committee’s (NAC’s) decision to rebase the economy to fiscal year 2015-16, GDP growth suddenly jumped to 6.5%, without any noticeable improvement in ordinary citizens’ lives.
Unfortunately, we still lack any concerted and serious steps to reform our fiscal policy to achieve a sustainable fiscal discipline. The latest Pakistan Economic Survey 2-23-2024 [“the Survey”], released on June 11, 2024, highlights the country’s worrisome fiscal statistics.
It states that in the fiscal year (FY) 2024, Pakistan’s consolidation measures though showed improvement in revenues, yet increase in budgeted expenditures nullified it due to higher debt servicing payments.
Fiscal deficit stood at 3.7% of GDP during July-March FY2024, unchanged from the previous year.
Measures to control non-mark-up spending and improve revenue mobilization resulted in a primary surplus of Rs.1615.4 billion (1.5% of GDP) during this period, up from Rs 503.8 billion (0.6% of GDP) last year.
It further highlights that total expenditure rose by 36.6% to Rs 13682.8 billion, with current expenditures growing by 33.4% to Rs 12,333.3 billion.
This is our real dilemma, deliberate understatement of expenditures in annual federal budget and then resort to additional grants! This quandary of the budget makers in not confined to any single political party—all indulged in it since the revival of so-called civilian rule in 2008.
In FY 2024, development expenditures increased by 14.2% to Rs.1158.1 billion, although the Federal Public Sector Development Programme (PSDP) showed a decline of 2.2%.
Total revenues grew by 41% to Rs.9780.4 billion, with non-tax collection up by 90.7% and total tax collection up by 29.3%.
The net provisional tax collection of the Federal Board of Revenue (FBR), after blocking bona fide refunds and taking billions as advance income tax not yet due, increased by 30.8% to Rs 8125.7 billion.
Even after these maneuvered numbers, it is admitted in the Survey that provinces posted a combined surplus of Rs 435.5 billion, down from Rs 456 billion in the last year.
Although the Survey’s figures show a positive trend highlighting improvements in various areas, the 36.6% increase in total expenditure is simply alarming.
The government has fixed total tax revenue receipts for the coming FY 2025 at Rs 12970 billion, comprising Rs 5512 billion from direct taxes and Rs 7458 billion from indirect taxes.
Non-tax revenue receipts are expected to be Rs 4845.415 billon, including levies and fees of Rs 24.809 billion compared to Rs. 20.877 billion in FY 2024, an increase of 18.83%.
Income from property and enterprise is projected at Rs 477,117 million, up by 7.83% from Rs 517,642 million the previous year. Additionally, revenue from civil administration receipts is expected to rise by 151.6%, from Rs 1,015,704 million to Rs 2,555,738 million.
Miscellaneous receipts are projected at Rs 1,787,751 million, up from Rs 1,393,627 million in the previous year. The projected capital receipts stand at Rs 3,034,379 million, including Recovery of Loans and Advances totalling Rs 491,999 million and Domestic Debt Receipts (Non-Bank net) amounting to Rs 2,542,380 million.
External receipts are anticipated to reach Rs 5685,801 million, with Public Account Receipts at Rs 120,232 million, Deferred Liabilities (Net) at Rs 53,035 million, and Deposit and Reserve projected at Rs 67,197 million for the financial year 2024-25.
Additionally, the government expects a surplus cash balance from the provinces amounting to Rs 1217 billion, compared to Rs 539 billion as per revised estimates for the financial year 2023-24.
The government anticipates collecting Rs 30,000 million from privatisation proceeds, a significant rise from Rs 10,838 million recorded in the financial year 2023-24, indicating an increase of 177.59%.
Similarly, the government foresees credit from the banking sector amounting to Rs 3,924,002, compared to Rs 3,335,188, reflecting an increase of approximately 17.65%. It estimates total expenditure for the FY 2025 to be Rs 17,203,391 million, compared to Rs 14,334,431 million, indicating an increase of approximately 20.05%.
The government has allocated Rs 13,640,239 million to General Public Services which is an increase of approximately 20.265%, Defence affairs and services at Rs 2,128,781 million, an increase of 15.62% and Public Order and Safety Affairs Rs 283,051 million showing 11.65% rise.
Economic Affairs Division is allocated Rs 357,735 million that is 36.73% increase, environmental protection, Rs 7,252 million, Housing and Community Amenities, Rs 27,917 million, Health, Rs 28,171 million, a minute increase of 1.37%, Recreation, Culture and Religion, Rs 18,466 million, Education Affairs and Services, Rs 103,781 million, an increase of 0.09% and social protection, Rs 607,997 million showing 26.63% increase. The government increased total expenditure by around 20.03%, whereas amounts allocated to health and education is 1.3% and 0.09%, respectively, showing the lopsided priorities of the government.
Pakistan is exerting considerable efforts to boost its exports; however, despite offering various incentives to exporters, our export figures still fall short of foreign remittances by expatriates. Several factors, including foreign policy and dependence on traditional methods, may contribute to this disparity.
It is imperative for Pakistan to adopt a modern and pragmatic approach to align its exports with global standards and secure its rightful place in the international market. However, this endeavour cannot be achieved without significant investment in human capital and skill development. While education and healthcare fall under provincial jurisdiction, the federal government cannot absolve itself of its responsibilities in this regard.
We need to focus on higher education and training of youth. It is a fact that a well-educated and trained youth population serves as a basis for an economic growth, particularly in earning foreign exchange. Their expertise enhances export potential, as skilled human capital becomes a valuable export commodity.
Moreover, skilled human capital export drives a prudent foreign policy, establishing diplomatic ties and fostering international cooperation, ultimately bolstering the country’s global standing but Pakistan is neglecting this positivity and has even failed to learn from its main rival India, whose nationals are now leading major high-tech enterprises of the United States.
The marginal increase of 0.09% in allocation for Educational Affairs and Services accentuates our hesitance to embrace modern techniques critical for effectively competing on the global stage and securing an equitable share.
The government is bent upon extracting maximum from the public by imposing exorbitant and regressive taxes and anticipates receiving Customs duties at Rs. 1591 billion, marking a 20.06% rise from the previous year, Sales Tax at Rs. 4919 billion, reflecting an approximately 36.39% increase, and Federal Excise Duty at Rs. 948 billion, with an anticipated surge of 58%.
Similarly, the government anticipates additional revenue streams, including a projected increase in Capital Value Tax (CVT) by 15,662 million, Workers Welfare Fund (WWF) at Rs. 16,637 million, and expected contribution of Rs. 25,639 million from companies’ profits to the Workers Profits Participation Fund (WPPF). Despite imposition of higher taxes and duties, the government has just spared about 1.46% extra for both education and health sector.
The above shows that if the prevalent policies continue unabated, we will not be a self-sufficient nation even in the next five years. As repeated time and again in these columns, we must act swiftly to fix fiscal distortions and imbalances and undertake fundamental structural reforms to overcome perpetual fiscal deficit and burgeoning debt accumulation. Concrete measures to achieve fiscal consolidation and higher sustainable growth were highlighted in our various columns, especially in a series of articles published before the announcement of the federal budget 2024-25, but alas, once again these fell on deaf ears.
Even the elaborate report [‘PRIDE-PRIME Tax Reform Commission: Tax Reforms: Revenue With Growth’] prepared and presented jointly by Pakistan Institute of Development Economic (PIDE) and Policy Institute of Market Economy (PRIME) met with the same fate.
Copyright Business Recorder, 2024