IN the backdrop of the recent India Pakistan fierce clash the Federal Finance Minister Muhammad Aurangzeb presented the annual budget for the financial year 2025-2026 with a total outlay of Rs.17.573 trillion and a rather ambitious 4.2 percent growth rate target the assembly session was rather loud and unruly during the speech of the finance minister.
True to past traditions the Finance Minister reiterated that this budget was being presented at a historical juncture in the history of the country he was referring to the recent armed clash with India.
He insisted on guarding the financial security of the country in the same way as the national integrity and sovereignty had been preserved by the armed forces and the nation.
“Pakistan has now achieved economic stability and is moving towards a Pakistan that is prosperous” he claimed.
Economists and financial analysts of the country and abroad have many different views and opinions about the budget.
According to one expert the reduced outlay for the current fiscal year is an anomaly which is likely due to the significant decline in interest payments as the government’s debt as percentage of the GDP has also declined and the increase in the defense expenditure was also expected.
According to him tax collection will now in-crease and so will the size of the tax net rather than an increase in the burden on those already in the tax net.
The main feature of the budget is the govt.
plan to undertake tariff rationalization.
Although tariff cuts have been announced, the important task is to ensure that they are not replaced with anti-dumping duties and countervailing duties to ensure better transparency in the process.
According to macroeconomist Sajid Amin Javed the rationalization of the tariff regime was a signal of opening economy and pushing the industry to modernize and innovate “Bringing the customs duties and other duties to zero in the next four to five years is a god policy direction” tax simplification, he noted was a very important aspect, as tax filing in Pakistan was complicated for a layperson “another good thing is eliminating the non-filer category” On the flip side, Amin pointed out that on a strategic level “This is exactly the budget that one can expect under the IMF targeting stabilization and meeting revenue targets.
“Most of the policy measures regarding taxation revolve around meeting revenue targets”.
He said “I feel this is a bid to correct the existing system in bits and pieces, but bigger reforms that are often discussed, such as bringing whole sellers and retailers, and agriculture under the tax net, there wasn’t much said on it he further stressed that structural reforms which were much needed to raise the tax base were not seen.
“Overall, it seems that the budget is silent on structural reforms.
Even the relief I feel is as expected under the IMF program”
This budget has earmarked Rs.2.55 trillion for defense which is 17% above the previous year’s budget.
This in-crease comes at a time when the Govt.
had promised to cut over all expenditure by 7%, as the cash-strapped country grapples with the fallout of an economic crisis and stringent loan term “After defeating India in a conventional war, we now have to surpass it in the economic field as well,” Prime Minister Shehbaz Sharif told his cabinet as he approved the budge.
Ironically Dr.Mohammed Ahmed Zubair a former Chief Economist at the Planning Commission had a rather scathing criticism of the new budget when he exclaimed “The new budget is yet another disappointing example of policy driven more by debt obligations than by economic reality” he went on to add “After grappling with stagflation in Fy23 and FY 24 high inflation paired with weak growth the economy has now a staggering 19% slipped into outright stagnation in FY25: Low growt, Cooling inflation, rising unemployment and shrinking consumer demand” he added that any rational policymaker would see this as a moment for stimulus— spending boosts and tax relief to jump start growth.
“Instead what we are getting is a tone-deaf commitment to fiscal austerity.
The Govt.plan to slash the budget deficit from 5.6 percent in FY 25 to 3.9 percent in FY26, and raise the primary surplus target from 2.2 % in FY25 to 2.4 % in FY26 that’s not reform its retreat” he observed and added that tax revenues were projected to rise a staggering 19%, while current spending excluding debt servicing was targeted to rise by 8.5 % in FY26.
Ali Hussnain an associate professor of economics at LUMS was rather optimistic when he opined “We have reduced the budget deficit significantly and e have run a primary budget surplus, which means that our expenditures this year were less than the revenue” he went on to add “Our debt profile will improve over time.
I believe we have al-ready seen better debt maturities in the past year and we are going to see the overall interest payments have gone down.
Overall the interest payments have gone down.
Overall, the debt is moving towards stabilization and we are not in as bad a debt crisis as we were previously”
The new budget does not show any reform measures that are the need of the hour.
Surprisingly teachers are faced with a new bombshell because of the withdrawal of the tax rebate and there appears to be no effort to broaden the tax base.
The 10% salary increase for Govt.
officials is a welcome measure for the beneficiaries only because this will benefit only a small proportion of the taxpaying community.
No mention has been made of the under taxed sectors like the Whole sale and retail sector and no commitment to impose tax on agriculture across the board.
The Minister did mention the Govt.
resolve to raise the tax to GDP ratio but he failed to address the critical issue of the imbalance between the direct and indirect taxes.
—The writer is Professor of History, based in Islamabad.
