The budget for the financial year 2023-2024, presented by the Government of Pakistan, has arrived at a critical time when the country is grappling with political and economic instability. Economists emphasize the importance of critically analyzing budget data and policies to assess their potential impact on the economy.
One positive aspect of the budget is the increase in the allocation for the Benazir Income Support Program (BISP) from Rs 400 billion to Rs 450 billion. This reflects the government’s commitment to addressing poverty and income inequality. Additionally, the government’s decision to fix the pension at Rs 12000 is a step toward providing social security to retirees, reducing their financial burden.
The allocation of Rs 10 billion to provide 100,000 laptops to students is commendable as it recognizes the importance of digital access in education. This initiative can help bridge the digital divide and increase educational opportunities nationwide. Furthermore, the exemption of customs duty on the import of raw materials for batteries, solar panels, and inverters to promote renewable energy and industrial production is a positive step. It has the potential to stimulate investment in the renewable energy sector and contribute to sustainable economic growth.
However, given the current political instability and challenges facing the country, setting an economic growth target of 3.5 percent for the fiscal year 2023-2024 appears to be a realistic goal. Nevertheless, such targets may pose challenges for future economic growth. The expected average inflation rate of 21% raises concerns about the purchasing power of the general population. High inflation erodes the value of people’s incomes, especially for those on fixed incomes. Additionally, the tax-to-GDP ratio of 8.7 percent indicates the need for concerted efforts to broaden the tax base and increase revenue collection. Improving the tax-to-GDP ratio is crucial to reducing dependence on debt and achieving sustainable fiscal stability.
The projected current account deficit of $6 billion by the end of FY 2023-24 highlights the need for effective management of external trade and inflows. To cover this deficit, the government plans to rely on external debt. This approach poses concerns as it further exacerbates Pakistan’s existing debt burden. The allocation of 1.8 trillion rupees for defense expenditure demonstrates the government’s commitment to national security, while the allocation of 22.7 billion rupees for the health sector indicates recognition of the importance of improving healthcare services.
However, considering the challenges posed by various pandemics since the COVID-19 outbreak, the allocated budget for the health sector may fall short of the actual requirements. The allocations of Rs 1.1 trillion for subsidies, Rs 761 billion for pensions, Rs 950 billion for the Public Sector Development Programme, Rs 22.7 billion for the health sector, and Rs 10 billion for the Prime Minister’s Youth Business and Agriculture Loan Scheme demonstrate the government’s interest in social development and economic empowerment. However, efficient utilization of these funds and effective implementation of projects are crucial for achieving the desired results.
While the budget for the fiscal year 2023-24 includes positive measures to address socio-economic challenges, it also lacks a clear plan to reduce or cover the deficit. The ongoing political instability across Pakistan, with caretaker governments ruling beyond their terms and upcoming general elections, makes it difficult for the conscious public to accept this budget. However, the current situation necessitates careful fiscal management, effective policy implementation, and a focus on long-term sustainable development.
Continuous monitoring of budget implementation and necessary adjustments are vital to achieving desired economic results while meeting the needs of the population. Reliance on external debt raises concerns about Pakistan’s debt sustainability. Although foreign inflows can provide short-term financial support, it is crucial to mobilize domestic resources and improve export competitiveness to reduce dependence on external debt.
One thing is clear this budget has been presented only to increase the popularity of the government political party and its allies and to make the opposition political party unpopular in public opinion. however, according to budget figures, some reform proposals include ensuring effective and transparent utilization of funds, long-term monitoring of pension revisions, focusing budget expenditure on education and IT in times of economic instability, and maintaining a minimum tax collection rate to promote the renewable energy sector while aiming to increase the tax-to-GDP ratio through comprehensive tax reforms.
To achieve the goal of economic growth, efforts should be directed toward improving productivity, attracting investment, and removing structural barriers. Effective monetary and fiscal policies are necessary to curb inflationary pressures and protect citizens’ welfare. Ensuring judicious use of external debt and investment in projects with long-term economic returns is crucial to avoid unsustainable debt burdens.
In a resource-constrained economy, striking a balance between defense spending and investment in social welfare, healthcare, education, and infrastructure is essential. Rationalizing subsidies can free up resources for critical development projects and reduce fiscal pressure. Addressing the root causes of instability, improving governance, and making economic and political stability indispensable are vital to ensure the effectiveness of the budget and achieving sustainable and inclusive growth.
