Can Pakistan's Latest Budget Aid Its Poorest Citizens?

Islamabad: Pakistan’s coalition government has set an ambitious tax collection target in its new budget. But will it truly aid the nation’s poor who are struggling to make ends meet?

Pakistan aims for 3.6% economic growth, announced Finance Minister Muhammad Aurangzeb on Wednesday while presenting his first budget to lawmakers.

Aurangzeb emphasized expanding Pakistan’s tax base to prevent overburdening existing taxpayers, aiming for equitable tax distribution while meeting revenue targets.

Despite Aurangzeb's claim that inflation has dropped to 12% annually, Pakistan has faced soaring inflation amid its worst economic crisis in decades, peaking above 40% in 2023 and causing protests over the unaffordable cost of essential items.

“We are moving in the right direction,” Aurangzeb stated, setting a challenging Rs13 trillion ($44 billion) tax collection target—40% higher than the current fiscal year. However, Pakistan’s informal and unregistered economic activities pose significant tax-collection challenges, affecting fiscal stability and growth.

Struggles of a Single Mother

Many ordinary Pakistanis remain skeptical about the budget's impact on their lives. Shahnaz Akhter, a domestic worker and single mother of six in Islamabad, expressed doubt that the budget will improve her situation. “The prices of staple foods increase weekly with no regulation to ease common people's lives,” she said, frustrated by the lack of relief from successive governments.

‘Taxation Heavy’ Budget

Analysts like Islamabad-based economist Safiya Aftab share Akhter’s sentiments, describing the budget as “taxation heavy” and unlikely to ease people's lives. Aftab criticized the budget for further burdening the poor with increased taxes on essentials like fuel and electricity.

Navigating Economic Challenges

Amid rising costs, the budget includes a salary increase for government employees and ongoing negotiations with the International Monetary Fund (IMF) for a bailout. The expanded budget—approximately $68 billion, up from $50 billion—aims to secure between $6 billion and $8 billion from the IMF, crucial for economic stability after near-defaulting on foreign debt payments in 2023.

“Pakistan’s budget aligns with IMF guidelines for fiscal consolidation,” said Mohammed Sohail, CEO of Topline Securities. “Though the tax target is high, new taxation measures may help meet deficit estimates.”

Pakistan’s Informal Economy

A small percentage of people contribute to Pakistan’s budget, hindered by corruption among tax authorities and businesses. Only 38 rupees of every 100 collected in taxes reach the government, with the rest lost to corruption, according to The Express Tribune.

Analyst Aftab criticized the strategy of imposing higher taxes on a few groups while leaving much of the economy untaxed, warning it could drive businesses underground or into the informal economy.

Economic Revival?

Pakistan seeks to revive its economy after years of recession and political instability, narrowly avoiding default last year as the rupee’s value plummeted and foreign exchange reserves dwindled, restricting imports.

“This budget is to show the IMF the government’s commitment to economic reforms,” said social policy analyst Abid Qaiyum Suleri, suggesting it’s a move to negotiate the next IMF program.

The success of Pakistan’s budget hinges on effective implementation and addressing challenges related to tax collection, the informal economy, and economic stability.