The current fiscal year rendered an estimated four to five million Pakistanis jobless and threw 20-30m below the poverty line. Moreover, record high inflation, hovering above 30 per cent during the year, tested consumers’ and businesses’ will to survive.

We may not see as many people added to the jobless pool in the next fiscal year. We may not see as many individuals slipping below the poverty line either. But the new fiscal year, starting from July 1, will again test people’s and businesses’ will to survive amidst slow economic recovery, high inflation, lesser subsidies and fresh taxes. FY24 will be more taxing — quite literally!

Excessive government borrowing from domestic and external resources during FY23 will eat up more than half of the projected revenue resources of FY24. The worsening law and order situation and the reemergence of terrorism will claim larger resource allocation for the maintenance of law and order.

And a politically weak federal government will not be able to cut current administrative expenses in the election year. That, too, will continue to devour a substantial chunk of national tax revenue. In short, the next year’s expenses will be too large, even if the government desists the temptation of allocating huge amounts of money for big-ticket, politically gainful development projects.

The new fiscal year will again test people’s and businesses’ will to survive amidst slow economic recovery, high inflation, and fresh taxes

That is why the federal government, according to credible media reports, wants to set FY24’s tax collection target at Rs9.2 trillion, up from FY23’s anticipated collection of Rs7.2tr.

The Federal Board of Revenue (FBR) cannot generate Rs2tr additional revenue in the next fiscal year without (1) increasing taxes on income from and sales of most goods and services and (2) bringing into the tax net more individuals and businesses and (3) getting rid of or minimising tax exemptions.

Though principally right, these measures would likely backfire due to their timing. People braving high inflation and businesses struggling to survive amidst falling aggregate demand would likely resist such measures. For the government, it would be too difficult to implement such politically tough tax measures when the country is experiencing a serious political-cum-constitutional crisis — and ever-growing uncertainty has become the order of the day.

The May 9 riots that erupted across the country after the “unlawful” arrest of PTI Chairman Imran Khan have exposed volcanic fault lines in our socio-political system. Who knows when and how a political volcano may erupt, leaving behind a new “dark chapter” in the country’s history and causing incalculable losses to the economy?

The doors of domestic borrowing remain open for the government, however, and it will continue to borrow heavily from banks. (This fiscal year’s government bank borrowing is expected to remain above Rs3tr.)

But, keeping in view the fact that excessive bank borrowings of FY23 will raise the cost of domestic debt servicing not only during this year but also in the next year, the government would do well if it increases the share of non-bank borrowing in the total mix of domestic borrowings. When seen in this context, the recent hiking of returns on the National Saving Schemes (NSS) makes perfect sense.

The government has raised the returns on various instruments of NSS by 92 basis points to 118bps to make them attractive enough for savers. Though even after an upward revision effective from May 9, net returns on NSS (after accounting for 38.4pc inflation) are negative, they may attract savers who are sick of receiving far lower returns on bank deposits.

Six-month National Saving Certificates, for example, now offer a 20.84pc annual return, which is higher by several percentage points than the 15-18pc annual return that most banks currently offer on six-month bank deposits.

In Pakistan, the government’s reliance on bank borrowing has a long history. To minimise this reliance, the best thing any government can do is to boost tax and non-tax revenue to levels where the need for bank borrowings gets reduced.

But that is not possible, at least in the next three years, because that is the minimum time required for putting the economy back on the 6pc-plus annual growth trajectory. And without 6pc GDP growth, revenue collection cannot be raised to levels where any government can expect to make substantial cuts in its bank borrowings. Naturally, then, the option of increasing the share of non-bank borrowing in the total domestic borrowing mix becomes more desirable.

But this objective cannot be achieved just by increasing the rates of return and making them correspond to the prevailing policy rate of the central bank. (The 20.84pc return on six-month saving certificates is closer to the State Bank of Pakistan’s current policy rate of 21pc). More needs to be done.

The government must consider (1) making the brick-and-mortar outlets of National Savings more saver-friendly, (2) establishing and expanding a chain of click-and-mortar outlets, and (3) introducing new, tailor-made saving products for different classes of savers.

During the Musharraf era, the idea of scriptless tradable saving bonds was explored, but successive governments made no big effort to make these bonds an important source of non-bank borrowing. Tradable bonds hold enormous potential for raising debt from non-bank sources. Whichever party comes into government after this year’s general elections may consider launching a range of such bonds to minimise its reliance on bank borrowing.

Whereas these bonds may cater well to the saving needs of the urban, financially literate classes, there is also an urgent need for launching exclusive saving products for farmers, non-working and working women in rural areas and college/university students.

Published in Dawn, The Business and Finance Weekly, May 5th, 2023