Finance Minister Ishaq Dar is set to reveal the federal budget for the fiscal year 2023-24 today, with a proposed outlay of Rs14.7 trillion. The budget carries a higher consolidated budget deficit, exceeding 6 per cent of the GDP, and includes allocations for various targeted schemes aimed at attracting voters in the upcoming general elections.
The government has established targets for tax collection by the Federal Board of Revenue (FBR) at Rs9.2 trillion, along with a non-tax revenue target of Rs2.7 trillion. To achieve the non-tax revenue target, the government plans to amend the finance bill, raising the petroleum development levy (PDL) from Rs50 per litre to Rs55-60 per litre. This adjustment aims to collect Rs870 billion in the next budget, as opposed to the revised estimate of Rs550 billion for the outgoing fiscal year.
The credibility of the budgetary figures remains a concern as they are subject to change throughout the financial year. If a new government assumes power after the general elections, it will likely need to introduce a mini-budget to align economic realities with the International Monetary Fund (IMF) and secure a fresh bailout package.
The government’s ability to satisfy the IMF on the revival of the stalled programme is yet to be seen. The continuing stalemate may endanger the diminishing foreign exchange reserves, with the State Bank of Pakistan’s reserves falling below $3.9 billion.
Without establishing a comprehensive budgetary framework with the IMF, signing the staff-level agreement will be impossible. Fulfilling three conditions becomes crucial: securing external financing of $6 billion, presenting the next budget in accordance with IMF guidelines, and ensuring a market-based exchange rate.
The IMF programme is scheduled to conclude on June 30, making any further extension unlikely, as stated by the finance minister during the launch of the Economic Survey for 2022-23. The need for a realistic budget for the next financial year is evident due to the lack of credibility surrounding the budgetary figures, which frequently undergo changes.
The tenure of the Pakistan Democratic Movement (PDM)-led government is set to expire on August 12. However, the government has approved an allocation of Rs90 billion for the implementation of the SDGs Achievement Programme (SAP) in the next budget, compared to the revised allocation of Rs116 billion for the current financial year.
Ensuring external debt servicing, which requires $25 billion, is the primary priority of the government in the next budget. How the government plans to generate such a substantial amount, considering it obtained just under $8.1 billion in the first ten months of the current fiscal year out of the total budgeted figure of $22.8 billion for external loans and grants, remains to be seen.
The fiscal constraints present significant challenges, as the total net revenue receipts of the federal government are insufficient to meet debt servicing requirements. After transferring resources to provinces and accounting for non-tax revenue, the total net receipts of the federal government are expected to amount to Rs6.5 trillion.
Meanwhile, total debt servicing will consume Rs7.5 trillion, resulting in a deficit of Rs1,000 billion for the federal government. Therefore, other expenditure categories, such as defense, salaries, pensions, civil government operations, subsidies, and grants to public sector enterprises, will have to be funded through borrowing.
During the survey launch, the finance minister pledged the government’s commitment to increase salaries, pensions, and minimum wages for workers in the FY24 budget. To finance the substantial budget deficit in the next financial year, Pakistan will need to acquire domestic and foreign loans amounting to Rs7,000 to Rs7,500 billion.
The challenges ahead do not have easy solutions, and addressing them will require profound structural reforms to navigate the economy out of its crisis mode.