NEXT year’s budget struggles to balance the IMF programme’s goal of fiscal consolidation with its desire to expand the economy at a moderate growth rate of 4.2 per cent — from the three-year average of 1.65pc — without offering a credible roadmap for a longstanding structural shift.
Many suspect that the real estate sector is the “backdoor the authorities plan to use for providing some impetus to economic growth”. The tax relief announced for the wealthy real estate and construction lobby is believed to be meant to drive up the growth rate.
This year’s provisional GDP growth estimate of 2.7pc falls short of the original target of 3.2pc, though it remains in line with the projection of the IMF and other multilateral lenders.
Many, however, suspect that the government will not be able to meet its target without putting pressure on its external account, as imports are rising at a much faster pace than exports.
“By pushing growth, the government risks bringing significant pressures on its current account,” Pakistan Business Council Chief Executive Officer Ehsan Malik insists, expressing his dismay over lack of any meaningful measures in the budget to increase industrial productivity and exports.
The budget has proved to be a major disappointment for those who thought the economic stability achieved under the IMF programme would guide the government to implement deeper reforms for a structural shift in the economy and lay the foundation for sustainable growth in future.
If anything, according to economist Sajid Amin, the budget is all about fiscal stabilisation and revenue generation and lacks in long-term growth reform vision. “It’s a routine budget that hopes to prepare the ground for the success of the upcoming second review of the IMF programme,” he argues.
Economist Ali Hasnain agrees. The budget aims to strengthen the financial position of the government, through cuts in developing spending and subsidies, without any structural improvement, he maintains.
“Similarly, the external sector improvements owe to record increase in remittances (rather than increase in exports and foreign direct investment). At best, it is a cautious step in the right direction, even if they don’t have a plan.”
The absence of credible effort to implement reforms, especially to broaden the base of taxes, apart, the government sets off in motion the long-standing tariff reforms — again under the IMF loan conditions — to revoke protections to some industries over the next five years and seeks to restrict ability of tax non-filers to purchase securities above a threshold and cars above 850cc or opening bank accounts.
Moreover, it lays the ground for phased removal of sales tax exemptions for industries (steel, edible oil & ghee, etc) operating in Fata/Pata in three years to make the playing field even across the country.
These are indeed welcome measures, said the Overseas Investors Chamber of Commerce and Industry (OICCI) in its reaction to the budget. Yet the organisation representing more than 200 foreign investors operating in the country expressed its deep disappointment over the limited progress in addressing inequitable corporate tax rates.
“There is an urgent need for a comprehensive overhaul of tax structures to enhance Pakistan’s competitiveness attracts foreign investment,” it said, regretting that the government has missed the opportunity to broaden the tax base in the next budget, which is devoid of any concrete strategy to document Pakistan’s substantial Rs9tr cash-based informal economy — a critical measure for meaningful revenue enhancement and economic formalisation.
The OICCI also noted the absence of meaningful reductions in government expenditure, which could have helped narrow the budget deficit. “Fiscal discipline remains critical to ensuring macroeconomic stability, and OICCI urges the government to prioritise expenditure rationalisation in its budgetary measures.”
Pakistan badly needs transformative policies to turn around the economy and out it on a sustainable path to growth. But that cannot be achieved by using the backdoors. Previous governments have tried that path and always led the country to a worse crisis than before.
Published in Dawn, June 11th, 2025
