THE economic survey for fiscal year 2025 perfectly encapsulates the dichotomy of the “glass half-full or half-empty” analogy.
Was there real growth in the outgoing financial year, or did the perpetually teetering economy fail to turn the tide? The survey has affirmative answers for both questions, so it’s really a matter of which indicators a person wants to weigh more.
The macro fundamentals have improved considerably. The headline Consumer Price Index inflation has dramatically declined, the current account balance is expected to be in surplus, the fiscal deficit is billed to decline to 5.5pc of GDP from the last five years’ average of 7.13pc, the debt-to-GDP ratio is down from 68pc to 65pc, the rupee has been stable since September 2023, workers’ remittances are rising and reserves have been rising.
These are the goods that have also been recognised by the IMF, other multilateral lenders and the global economic agencies.
But, there’s also the bad.
The economic growth is sluggish, agriculture and big industry are in serious trouble, exports are not increasing fast, large portions of the economy still operate in the shadows and tax burden remains lopsided, with more and more being squeezed out of the salaried class and corporate sector.
Finance Minister Muhammad Aurangzeb’s press conference on Monday clearly showed he was focusing on the goods.“We needed to fundamentally change the economy’s DNA, and for that, we needed structural reforms which are elusive in this country,” the minister said, hinting towards failed past efforts to undertake critical economic reforms.
“We must resist the ’sugar rush. The last thing we want is to go through another round of boom and bust cycles,” the minister maintained.
Balancing tax burden
The minister’s optimism wasn’t shared by many who have repeatedly seen enthusiastic reforms being sacrificed at the altar of political expediency.
Economic experts wonder if the next budget — set to be announced today — would be any different from the previous ones.
Would it lay a foundation for the structural shift? Will there be serious efforts to broaden the tax base by targeting untaxed and under-taxed sectors to cut the fiscal deficit? Will there be reforms needed to boost exports?
Abdul Aleem, the chief executive of the Overseas Investors Chamber of Commerce and Industry, said the salaried class and the corporate sector have borne a “disproportionate share of tax burden for far too long”.
“It is putting a huge drag on investment, exports and economic growth,” he told Dawn last week.
“Enough is enough. This cannot go on any longer. Something’s got to give,” he said about the disproportionate taxation.
According to Mr Aleem, the government’s expenditure is rising, particularly defence. To meet this growing need for money, the tax structure would have to be overhauled to offload pressure on compliant taxpayers. This implies that the tax rates for the sectors shouldering excessive revenue burden would be cut, and for those not paying according to their size in the economy, increased.
On the face of it, this measure should provide relief to the salaried class and the corporate sector they have been imploring for. Yet, many suspect the government’s intentions and consider it a ploy to not touch the powerful lobbies with political clout.
The broadening of the tax net is also crucial for the government to build infrastructure for future growth.
The allocation for the public sector development projects as a ratio of the size of the economy is being curtailed every year to contain the fiscal deficit.
This means the government is spending less and less on people’s socioeconomic benefits.
Had development spending not been curtailed, the average fiscal deficit could have topped 10pc of GDP in the last five years, an economist said.
Industrial reforms
Fair taxation is not the only demand the government would have to address in the next budget.
The industry is also calling for measures to make the manufacturing sector cost-competitive in order to compete in international markets.
According to Gohar Ijaz, an industrialist, a “consistent 5-Year industrial and export policy” is essential to revive the sector. “Investors need predictability; the economy needs direction,” the former caretaker trade minister wrote in a social media post.
He also called for removing what he dubbed as a bias in the Export Facilitation Scheme against the domestic value chain.
The government has a very tight fiscal rope to walk. How will it balance demands for relief with the IMF’s goal of debt sustainability without structural tax reforms is anyone’s guess.
Published in Dawn, June 10th, 2025
