On Friday, Finance Minister Ishaq Dar unveiled the Rs 14.5 trillion budget for FY24 as observers across the country and the IMF watched in anticipation to see what targets the government will set for itself in the run-up to the elections and in the backdrop of a flailing IMF programme.
Off the bat, FM Dar made it clear that this budget should not be viewed as an election budget, but instead as a “responsible” budget. The target growth rate has been set at 3.5 percent for the coming fiscal year, and it was revealed that the total current expenditure for this year is 53 percent higher than last year’s budgeted figure. The dire situation regarding the deficit is obvious from the fact that interest payments and debt servicing have risen by a massive 85 percent from last year to Rs7,303bn—accounting for 55pc of total current expenditure—making it the single largest expenditure of the government.
While presenting the budget, Mr Dar’s speech was politically angled as he kept referring to the achievements of his last stint in government. This is perhaps an attempt to persuade critics that the government’s ability to manage the economy should not be judged based on recent performance but on the 2013-17 tenure instead.
Continuing the thread of how the current situation is extremely challenging for the common man, the cabinet has approved a 30 percent increase in the salaries of government employees, and it has also proposed raising the minimum wage to Rs30,000 per month. This is the bare minimum that should be done given the inflation levels. The government’s focus on the agriculture sector is also commendable and does not come as a surprise, with special measures being introduced along with a higher loan ceiling, in addition to removing import taxes and duties on hybrid seeds.
Among other positives, it is good to see that the income tax for IT professionals has been maintained at 0.25 percent till 2026, and provisions have been included to facilitate imports which will help with the development of this critical sector. Meanwhile, no new taxes have been imposed on the industrial sector due to low growth. However, the focus on attracting remittances for real estate investments is concerning as this is an unproductive sector, and the incentives being offered are akin to a money-whitening scheme.
It remains to be seen if this budget will be enough to generate the required revenue given the country’s financing constraints, and in the coming days, it will become clear if it is in line with the IMF’s expectations. If not, we may see another mini-budget announced shortly to evade the risk of sovereign debt default.