The health of an economy is reflected in a multitude of statistics, not all of which move in the same direction. That’s why a government can always muster a couple of encouraging statistics and its critics can corral together disappointing statistics to amplify their respective narratives about how the economy is doing.
However, if we take a holistic and historical look at the measures economists use to assess the health of Pakistan’s economy, two conclusions become inescapable. One, compared with regional and peer countries, Pakistan has been in an economic decline for about two decades. And two, it is becoming increasingly difficult to stop our downward slide as time goes by.
It’s debatable why this is so. Is it because of our extremely high national debt, low and shrinking exports, high and unfair taxes, high utility rates, poorly educated kids, population growing too rapidly, a large and extractive government being supported by too few, elite rent-seeking, endemic corruption, terrorism, etc?
Let’s leave aside why any of us think the decline is happening. Since the decline is obvious, the government must have a theory of why we are declining and a vision of what must be done to change our trajectory. This budget didn’t show that vision.
The context in which this budget should be analysed is whether it is going to just tinker around the edges as we continue to lose ground to our neighbours or will it try to arrest this downward trajectory of high inflation, low growth, yearly increase in the percentage of those unemployed (now at a two-decade high) and those living in abject poverty (now the highest in a decade).
This is Prime Minister Shehbaz Sharif’s record fifth consecutive budget. Given our population growing at a clip of 2.5%, the per capita GDP or income growth in his first four years has been: -2.7%, -0.1%, +0.5% and +1.2%, for a four-year total of -1.2%. Pakistanis today are poorer than when the prime minister took over. During his four years, cumulative inflation has been 78%. Exports are lower than last year and investment (both local and foreign) remains disappointing. Let’s look at some relief measures in the budget. Salaried people’s taxes have gone from less than Rs200 billion to over Rs600 billion in three years. Some relief was warranted, and I am glad it came. I appreciate the elimination of the surcharge on salary income and the decrease in tax rates across different brackets. But whereas the removal of surcharge is a relief, the changes in tax rates, keeping in mind inflation, are not necessarily a relief. For instance, a person making Rs250,000 a month was paying 23% marginal tax, but that rate has now been reduced to 20%. But if, because of inflation, his salary increases to Rs275,000 per month, s/he will be bumped up to the next bracket and his marginal tax rate will become 25%.
Another positive is the elimination of super taxes on companies with revenue below Rs50 crore. Elimination of the super tax on exports is also positive, as it essentially meant the more you exported, the more you were taxed. Fixing exporters’ working capital loans to a low rate will be welcomed by the industry, but it has historically shown no impact on exports. A more useful measure is subsidised long- term loans for the purchase of export machinery.
There are, as usual, other sops for the rich. The government has eliminated the tax on first- and business-class airline tickets and reduced the tax on credit card purchases in foreign currency. This is not going to help a great majority of Pakistanis, but will greatly help the top 1%.
The government has also rightly eliminated the 1% capital value tax on foreign assets held by Pakistanis. This was a tax I imposed, and I had admitted at the time that it was a mistake I would correct, but before I could do so, I was removed. Again, this is not important to most Pakistanis, but it ensures that very rich Pakistanis don’t move their legal residences out of Pakistan.
Finance ministers’ speeches are long on relief measures and platitudes and short on all the new taxes the new budget imposes. In a day or two, those things will become clearer, but under an understanding with the IMF, we will see Rs800 billion in new taxes and administrative measures imposed by the federation and the provinces.
There is an extensive expansion of the sales tax regime, whereby companies will pay tax not just on the sale price but on the maximum retail price. This would mean about a 1% increase in retail prices of those goods, but, more importantly, a greater advantage for companies that evade taxes.
There is also, finally, a fixed tax on shopkeepers, albeit at a low amount and with partial amnesty. I tried this years ago, but it didn’t go so well for me. I wish the current team better luck.
Last year, the government allocated a budget of Rs971 billion to run the civilian government. With all the austerity measures announced by the prime minister, there was some hope that the total expense would come under the budgeted amount. In the event the amount came to be Rs1021 billion, which is Rs50 billion more than the budgeted amount. Whither austerity for the government?
The four provincial and the federal governments combined are going to spend about Rs3700 billion on so-called development programmes. Even if we assume there is no corruption in these programmes and all these projects are needed, wasn’t it time to seriously reduce them and give substantial tax relief and reduce the deficit? After all, is our problem that our government is too small or that it is too big and creates huge deficits?
The government has also announced that tariff subsidies for low-income consumers (those using less than 200 units) will be eliminated from the bills but provided through BISP. But the target for increased BISP recipients is 12 million, whereas there are 26 million homes that get subsidised power. I think it’s safe to say that many of the current recipients of the subsidy will be left out.
Overall, the budget provides some relief for the salaried class and businesses. But one failed to see in this budget an effort to substantially increase exports, get economic growth or reduce poverty. For a healthy economy that calls for tinkering at the edges, this was a fair budget. But for a struggling economy desperately in need of jobs and growth, this was an uninspired budget.
The writer is a former finance minister and secretary of Awaam Pakistan.
Disclaimer: The viewpoints expressed in this piece are the writer’s own and don’t necessarily reflect Geo.tv’s editorial policy.
Originally published in The News
2026-06-13 09:25:00
