Finance Minister Muhammad Aurangzeb presents Rs18.9tr maiden federal budget – Pakistan
Income tax slabs changing; “go, Nawaz, go,” being chanted in NA; PML-N succeeds in mollifying PPP to attend proceedings; Bilawal sitting out session.
Finance Minister Muhammad Aurangzeb presented his first federal budget in the National Assembly on Wednesday with a total outlay of Rs18.8 trillion. Opposition lawmakers, who were absent in the previous few budgets, loudly chanted slogans.
Shouts of “go, Nawaz, go,” thundered throughout the proceedings as Aurangzeb powered through his speech, seemingly unfazed.
Main objectives of FY 2024-25 budget:
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Ensuring stability and growth through fiscal consolidation and efficient use of public money
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Bringing about reforms to ensure a sustainable external sector by reducing the current account deficit
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Strengthening the policy framework for mobilising the private sector, fostering entrepreneurship, encouraging investment, and promoting innovation to stimulate economic growth
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Supporting vulnerable sections of society through pro-poor initiatives
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Improving the efficiency and productivity of public sector enterprises by allocating more funds for PSDP
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Introducing targeted reforms for energy and agricultural sectors
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Education and skill development of youth
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Integrating green and gender-responsive budgeting into public finance management
This year’s budget, like last year’s, is widely considered to be crafted to align with the International Monetary Fund’s (IMF) requirements to secure another bailout, this time “larger and longer”
The finance minister thanked Prime Minister Shehbaz Sharif, PML-N chief Nawaz Sharif as well as various other leaders of the coalition government for their guidance in preparing the budget
“Dear speaker, I think that despite political and economic challenges, our progress on the economic front in the past one year has been impressive,” Aurangzeb said.
He urged Pakistan to capitalise on a fresh opportunity to revitalise its economy.
“Pakistan has another opportunity to improve itself and embark on the path of economic development. I request everyone not to waste this chance,” Aurangzeb said.
The finance minister hailed the government’s efforts to address economic challenges and pledged to accelerate development under the leadership of PM Shehbaz.
“Before presenting the budget, I want to highlight our journey thus far,” the minister said. “Under Prime Minister Shehbaz Sharif’s leadership, we have pursued a homegrown agenda that has enabled us to overcome current economic challenges and boost the pace of development.”
Aurangzeb acknowledged the challenges faced by Pakistan’s economy, which had been struggling with depleted foreign reserves, a 40 per cent depreciation of the rupee, stagnant economic growth, and soaring inflation that pushed citizens below the poverty line.
He commended the government for securing a crucial nine-month IMF programme in June 2023, which helped Pakistan avoid economic collapse.
“The previous IMF programme was ending, and a new deal was essential to prevent a default. I commend Shehbaz Sharif’s government for their efforts in securing the programme,” he said.
Aurangzeb highlighted the significant improvement in economic indicators, crediting the PM and his team for their efforts. “Inflation stood at 11.8pc in May, a notable achievement considering the challenges. We’re on the right track, and inflation is likely to decrease further in the coming days,” he said.
The minister spoke of a significant turnaround in Pakistan’s economy, with foreign exchange reserves bolstered and international investors showing keen interest in investing in the country.
Key points from tax policy
- Expand the tax base to enhance the tax-to-GDP ratio
- Documentation of the economy through digitization
- Progressive taxation regime to increase burden on high earners
- Increase in transaction taxes for non-filers
- Protect vulnerable segments from impact of inflation
“Pakistan’s foreign exchange reserves have been strengthened, and international investors are now seeking opportunities to invest in our economy,” Aurangzeb said, highlighting the improved economic outlook.
He applauded the State Bank’s decision to cut interest rates, citing visible efforts to combat inflation. “The State Bank’s interest rate cut is a significant move, and the efforts to curb inflation are evident. Shehbaz Sharif and his team deserve congratulations for their commendable efforts to turn the economy around,” Aurangzeb said.
“These achievements are not ordinary. As a result of these, the country has exited a difficult time.”
The minister emphasised the need for patience and collective efforts to achieve sustainable economic development, cautioning that progress cannot be accelerated overnight.
Aurangzeb called for prioritising the private sector’s growth, acknowledging its crucial role in revitalising Pakistan’s economy.
“It’s time to give primary importance to the private sector in our economy,” Aurangzeb said.
Aurangzeb identified structural factors as key to addressing Pakistan’s economic imbalance, stressing the need to boost investment, economic output, and exports.
“We’re facing an economic imbalance, but structural factors like investment, economic output, and exports can help address this challenge,” Aurangzeb said, as he outlined a path forward for economic stability.
He said like most modern economies, we also need to keep in mind privatization and regulatory reforms. The state should limit itself to essential public services only.
“To improve productivity, domestic and foreign investment should be encouraged,” he said.
Total budget outlay
The federal budget for fiscal year 2025 has a total outlay — the sum of expenditures and net lending of funds — of Rs18.877 trillion, representing a 30pc increase from the previous year’s budget.
Current expenditure
The government has proposed Rs17,203 billion for current expenditure in the FY25 budget, a substantial 29pc increase from the previous year.
Interest payments, or debt servicing, have surged 34pc to Rs9,775 billion, consuming more than half of total current expenditure and becoming, like last few years, the government’s largest single expense.
Federal revenue
Pakistan’s total revenue for fiscal year 2025 is budgeted at Rs17,815 billion.
After accounting for provincial transfers of Rs7,438 billion, the net revenue stands at Rs10,377 billion, representing a significant 48.7pc increase from the previous year.
Inflation
The government has set an inflation target at 12pc for next fiscal year, aiming to rein in prices.
“There is a need for patience and extreme hard work, combined with homegrown corrective plans. The public must work together with institutions to achieve our economic goals,” Aurangzeb said, once again stressing the importance of collaboration and sustained efforts.
Aurangzeb emphasised the need for Pakistan to transition from a government-controlled economy to a market-driven economy, aligned with global standards, to boost exports and foster a savings-and-investment-based economy.
“We must shift from a government-determined economy to a market-driven economy, aligning our economic system with global standards, increasing exports, and promoting a savings-and-investment-based economy over a consumption-based one,” Aurangzeb said.
He highlighted the importance of considering equity and inclusion when implementing economic reforms, urging bold measures to ensure a more equitable economic system.
“When introducing economic reforms, we cannot ignore equity and inclusion. Bold measures are necessary to create a more inclusive economic system,” the minister said.
Earlier, the session commenced with the recitation of the Holy Quran and the national anthem.
Prime Minister Shehbaz Sharif and Deputy Prime Minister Ishaq Dar — Aurangzeb’s predecessor — are attending the session.
GDP growth target
Disgruntled PPP
The session started with a nearly two-hours delay after the PPP voiced reservations on the development allocations and PML-N managed to placate them.
PPP lawmakers are now attending the session to complete the required quorum, albeit without party chairman Bilawal Bhutto Zardari. After recitation of the Holy Quran and the national anthem, the presentation is expected to begin.
Earlier, PPP leader Khurshid Shah, speaking to reporters, said the party had reservations with regard to the Public Sector Development Programme (PSDP) budget and that the PPP should have been taken into confidence for the budget.
“It was decided that the PSDP for the four provinces would be decided together,” he said while speaking to the media.
“We are in the same boat. If something goes wrong, it would be not just for the PML-N, but for us as well [as allies],” the PPP leader said, adding that the decision to not take part in the speech was to protect their party.
He stated that if his party were taken into confidence then they can have dialogue.
Following a PPP parliamentary party meeting, PPP MNA Shazia Marri told reporters that: “We had two party meetings, one yesterday and another today, to discuss our concerns and recommendations, but they were not addressed.
“Our members have protested the violation of our agreement on PSDP, and we have received no response to our legitimate concerns.”
Following the airing of these concerns, Deputy Prime Minister and PML-N leader Ishaq Dar met PPP Chairman Bilawal Bhutto Zardari in his chambers. Shortly afterward, Dar told reporters that the nation would receive “good news [in this regard soon”.
Furthermore, party leaders Naveed Qamar nodded in affirmation when asked by reporters whether the party would join the session.
A meeting of the federal cabinet took place to approve the budget. Soon after the government released a photograph of Prime Minister Shehbaz Sharif signing the budget after it was approved.
As per the government’s tentative plan, a general debate on the budget would start on June 20 and would continue till June 24. The members will take part in the debate and voting on cut motions on June 26 and 27 whereas the budget will be passed on June 28.
A day earlier, the government unveiled the Pakistan Economic Survey 2023-24, which showed that the economy failed to meet most of its targets set in the previous budget due to challenging conditions. The agriculture sector, however, achieved unprecedented growth.
But the comments made by the finance minister yesterday hinted at a renewed focus on taxing untaxed
On Monday, the National Economic Council (NEC) — comprising Prime Minister Shehbaz Sharif, Deputy PM Ishaq Dar, the four chief ministers and the defence, finance, and planning ministers — approved a Rs3.792 trillion federal Public Sector Development Programme — more than 47pc increase compared to the previous FY.
Last week, it was reported that the finance ministry and the IMF were locked in last-minute talks ahead of the budget as the global lender put forward some tough conditions.
The IMF’s key demands include an increase in the tax revenue target, withdrawal of subsidies, taxes on the agriculture sector, increase in levy and taxes on power, gas and oil sectors, privatisation of sick government organisations and units and improving administration, a ministry official said.
Meanwhile, economist Sakib Sherani said the budget would be in line with IMF requirements but cautioned, “However, the real problem will be adherence to fiscal austerity and prudence and containment of populism.”
Ahead of the budget presentation, PM Shehbaz also chaired a meeting on the “rightsizing of the government”, the government’s official X account stated.
According to state broadcaster PTV News, a committee constituted for the purpose presented a preliminary report before the premier.
The report, containing short-term and mid-term recommendations, proposed shutting down a few state-owned enterprises, merging several others and handing some to the provinces, PTV News reported.
The committee further recommended that all such posts vacant for more than a year be abolished and that government officials’ “unnecessary travel” be prohibited while teleconferencing be encouraged.
Subsequently, the prime minister formed a high-powered committee to furnish a comprehensive report within 10 weeks on the said proposals.
Agriculture only saving grace in otherwise dismal year
According to the PES, the strong 6.25 per cent expansion in the agriculture sector — said by the report to be the highest in 19 years — drove Pakistan’s GDP growth by an expected 2.38pc in FY2024, recovering from a contraction of 0.21pc in the previous year.
The report said fiscal discipline was maintained, with a fiscal deficit of 3.7pc of GDP and a primary surplus of 1.5pc of GDP. Total revenues, meanwhile, grew by 41pc, driven by non-tax revenues and improved tax collection.
The State Bank of Pakistan, meanwhile, kept a tight monetary policy, with a 22pc policy rate, helping to ease inflation to 26pc from 28.2pc last year.
The current account deficit narrowed by 87.5pc to $0.5 billion compared to $4.1bn last year, and gross foreign exchange reserves increased to $8.0bn.
However, the PES noted a decline in the investment-to-GDP ratio, sluggish large-scale manufacturing, and high public debt.
It further revealed that cash-strapped Pakistan witnessed the highest-ever single-year increase in tax exemptions or concessions, surging by 73.24pc compared to the previous year to dole out a record Rs3.879tr.
During the presentation, Aurangzeb hinted at letting “no sacred cow” escape without paying due taxes through the budget for FY2024-25. He expressed confidence in beginning the next fiscal year on a stronger note, backed by the IMF’s support.
Speaking less on the performance of each economic sector and their sub-sectors, the finance minister stressed focusing on reforming the revenue system, energy sector, and state-owned enterprises (SOEs), reiterating that there were no strategic SOEs.
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