In a rather noisy National Assembly session on Tuesday, Finance Minister Muhammad Aurangzeb presented the budget for the fiscal year 2025-2026, with a total outlay of Rs17.573 trillion and an ambitious 4.2 per cent growth target.
In his speech, Aurangzeb said the budget was being presented at a “historic moment”, referring to the recent Pakistan-India escalation. He stressed the need for ensuring the country’s financial security in the same way that national sovereignty was protected.
“Pakistan has now achieved economic stability and is moving towards a Pakistan that is prosperous,” he said.
Dawn.com reached out to leading economists and analysts for their key takeaways from the budget. Here’s what they had to say:
‘An anomaly’
Economist Adil Nakhoda noted that the government had reduced its outlay for the current fiscal year, which, according to him, was an anomaly. “This is likely due to the significant decline in interest payments as the government’s debt as a percentage of the gross domestic product has also declined,” he said.
He pointed out that the increase in defence expenditures was also anticipated.
“Tax collection is expected to increase. This should come via an increase in the size of the tax net rather than increasing the burden on those already in the tax net,” Nakhoda said.
He added that the main feature of the budget was the government’s plan to undertake tariff rationalisation. “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.”
‘Short of structural, bold reforms’
Highlighting the positive aspects of the budget, macroeconomist Sajid Amin Javed said the rationalisation of the tariff regime was a signal of opening the economy and pushing the industry to modernise and innovate. “Bringing the customs duties and other duties to zero in the next four to five years is a good policy direction.”
Tax simplification, he noted, was a very important aspect, as tax filing in Pakistan was complicated for 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 International Monetary Fund” — targeting stabilisation 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 the bigger reforms that are often discussed, such as bringing wholesalers and retailers, and agriculture into the tax net, there wasn’t much said on it.”
The macroeconomist stressed that structural reforms, which were much needed to increase 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 programme.”
He also highlighted some contradictions in the budget. “On the other hand, we are saying we want to formalise the economy and increase financial inclusion, but we have increased taxes on withdrawing money from banks for non-filers from 0.6pc to 1pc, which I feel may discourage financial inclusion.”
“Overall, I feel the budget falls short on structural and bold reforms; it is a stabilisation budget formed to meet revenue targets. One more thing I am seeing is that the objective or principle guiding the budget is the incoming IMF tranche.
“There is no undue relief. There is an attempt to balance the fiscal discipline,” Amin added.
‘Misplaced priorities’
“There is some positive news: fiscal consolidation,” said Ali Hasanain, an associate professor of economics at LUMS. “We have reduced the budget deficit significantly, and we have run a primary budget surplus, which means that our expenditures for this year were less than the revenue.”
“Our debt profile will improve over time. I believe we have already seen better debt maturities in the past year, and we are going to see that the overall interest payments have gone down. Overall, the debt is moving towards stabilisation, and we are not in as bad a debt crisis as we were previously.”
He noted that the big changes seen could be thought of more as accounting discipline rather than structural reforms, “which means we have reduced expenses in development spending and cut subsidies”. While structural changes were missing, there was emphasis on discipline in spending, which Hasanain said was both good and bad.
“Thirdly, our development spending continues to look like it has distorted priorities. For example, 30pc of development spending is on transport and 5pc-6pc on education, which shows you are following an old development plan and your priorities are misplaced.”
Talking about the reduced tax bill for the real estate sector, he said it went against the grain of advice by most economists and international institutions such as the IMF and World Bank. “It encourages speculative investments, and it does not improve the external sector picture.”
Moreover, the national tariff policy saw some serious tariff reductions, Hasanain said. He explained that Pakistan, over the last decade, had substantially increased its protection of certain industries such as auto and mobile manufacturing. The raw material for these industries was imported on cheap tariffs, and the final good was imported on expensive tariffs. “This type of industry is a road to nowhere because it doesn’t make you globally competitive, nor does it increase exports.”
Commenting on the overall budget, he said that it was relatively disciplined but within the status quo and political constraints. “I think structural reforms and a serious reform agenda have not manifested. When that happens, change would be seen in several areas.
“If they actually want to transform the country, it should be done by rethinking how the country is governed,” he added.
