Budget making is no easy task in a country like Pakistan burdened with massive debt and deep-rooted structural economic imbalances. In addition to internal vulnerabilities like rampant corruption and weak governance and inefficiencies, the country is exposed to global risks, including fluctuating commodity prices and interest rates, lack of investor interest and various kinds of volatility.
Internally, we face the challenges of fiscal imbalances, tax evasion and inadequate tax collection, currency depreciation and high inflation rates. According to the IMF, a large part of the economy is uncompetitive, dependent on extensive use of protection, subsidies, and tax concessions, which have undermined the tax base. A difficult business environment and weak governance have hindered investments, which remain significantly lower than peer countries, further undermining competitiveness.
Luckily, over the last two years, the economy has shown signs of stabilisation as evidenced by improved fiscal performance, a positive external account, and falling inflation. Revenue mobilization and restrained current spending have contributed to a narrower fiscal deficit and a surplus primary balance. The current account registered a higher surplus, driven by rapid remittances and export growth, while reserves have gone up, and the exchange rate remains aligned with the market. Inflation has reduced to its lowest level, creating space for a more supportive monetary policy in upcoming months. Social protection and climate finance initiatives are progressing, reinforcing the path toward inclusive and sustainable growth.
In the given circumstances, budget makers will need to be more creative in order to achieve desired results. Budgets should be carefully crafted focussing on long term national policy objectives. Finance Minister Muhammad Aurangzeb recently stated that the government is preparing to introduce bold measures in the budget with special focus on strategic direction. This is welcome as previously the focus remained on balancing the books by fixing unrealistic revenue targets and tinkering with the Public Sector Development Programme (PSDP) from time to time.
Among other things, the budget should aim to translate the positive macroeconomic signals into sound proposals. Top priority should be given to broadening the tax base through digitization and better enforcement. The FBR should arrange for inter-agency data sharing, and AI-based risk profiling to enhance compliance. At the same time, the undocumented segments in retail, real estate, and agriculture should be brought under the tax net. Simplification of tax procedures, reduction in litigation, and automation of refunds will go a long way in ensuring compliance and raising the tax collection.
A prime need is to provide relief to the salaried class through upward revision of tax slabs and introduction of indexation to cushion the impact of inflation. The withholding and advance tax mechanisms must be streamlined and curtailed to prevent unjustified collection and delays in refund. The burden of indirect taxes such as General Sales Tax (GST) disproportionately affects poor households. Reduction of sales tax rates, particularly on essential items and utilities, must be considered in the next budget. The fiscal space generated by non-tax revenues and improved FBR performance should be utilised for greater tax relief for lower income groups.
Another area in which the new budget must make an impact is the ailing energy sector. There is a need for tariff restructuring, reduction of subsidies, and modernization of grid infrastructure. Greater investment in smart metering and solar power can much relieve the woes of the energy sector. The petroleum levy should be reduced to lower the price of petrol which has become very cheap in the international market. Structural bottlenecks in the energy sector directly affect industry competitiveness and must be addressed without further loss of time.
A new budgetary strategy is needed to stimulate GDP growth through public development spending and private investment. The Public Sector Development Programme must prioritize labour intensive and high yielding projects, especially in transport, housing, and rural road network sectors. To accelerate the pace of industrialization, the government strives to channel more credit to small and medium enterprises (SMEs). To this end the budget should allocate more funds for technology parks, export clusters, and skill training to support job creation.
Innovative methods should be introduced to attract more FDI which at present is at a low level. Without foreign investment we cannot build external resilience. The budget must devise ways to encourage export diversification through sector-specific incentives and simplification of export procedures. Foreign exchange reserves can be built by encouraging remittance inflows through formal channels. The incentives for FDI and remittances should include tax holidays and repatriation ease.
A budget is not merely an accounting exercise or book keeping. It is a comprehensive document enshrining a government’s economic vision and its policies with regard to economic growth and welfare of the masses. Seen from this perspective, the coming budget should outline what the authorities plan to maximise not only economic growth but also the welfare and well being of the common people.