ISLAMABAD: The federal government has introduced a highly inflationary Rs18.9 trillion budget, designed to balance lavish spending promises for political allies with unprecedented new taxes to meet International Monetary Fund (IMF) conditions.
The budget represents a 30% increase, or Rs4.4 trillion, from the previous year and features record allocations for interest payments, defense, and development. This ambitious fiscal plan has raised skepticism about its feasibility and its claim of fiscal consolidation.
The finance minister, Muhammad Aurangzeb, faced criticism for the budget’s lack of credibility, particularly regarding the record Rs13 trillion tax collection target for the Federal Board of Revenue (FBR). There were discrepancies between the announced primary budget surplus target and the figures in the budget documents, which the Ministry of Finance has yet to clarify.
Despite imposing a record Rs1.5 trillion in additional taxes, the budget reveals an Rs800 billion shortfall in achieving the tax target. The government’s strategy includes stringent new measures, such as increased taxes on various goods and services, bans on foreign travel for non-filers, and severe penalties for tax evasion.
The budget also includes significant increases in petroleum levies, taxes on sugar, and essential goods, contributing to an expected inflation surge. Government employees will receive a pay raise, but private sector workers face higher taxes.
The government plans to borrow a record Rs8.5 trillion, which will exacerbate its dependence on banks and foreign lenders. The budget’s large allocations for interest payments, defense, and development are not aligned with Pakistan’s economic realities, leading to concerns about its long-term sustainability.
The Finance Minister acknowledged that achieving the Rs13 trillion tax target might be challenging and that contingency measures are in place. However, the budget’s reliance on borrowing and new taxes is expected to create significant economic strain and further inflationary pressures.
