Budget season is upon us once more and much like previous budgets, this one will once more have the usual slogans. The government will talk of how this budget is meant to course correct while protecting ordinary citizens, while the opposition will protest claiming that the government is breaking the back of Pakistanis.

The media will cover various aspects, probably focusing on the conditions of the International Monetary Fund (IMF) more so than in previous instances.

Given the ongoing economic crisis in the country and the need for sustained support from multilateral and bilateral creditors, this budget will ultimately boil down to how the sovereign, meaning the Government of Pakistan, will make ends meet.

Which is why to distill the signal from the noise, you should focus on these three things in the hours after the budget data is made public:

Tax target and its mechanisms

We all know that the Federal Bureau of Revenue (FBR) loves to cut a cake every time it collects a record amount of taxes. The government is likely to once more set another record-breaking tax collection target and showcase this as a commitment to promoting economic stability. Data shows that tax revenue collection increased from Rs4.2 trillion in fiscal year 2019-20 to Rs7.2 trillion in 2022-23. In nominal terms that is an increase of 71 per cent, and perhaps worthy of lots of cakes. But in real terms, tax collection declined, considering the fact that the consumer price index grew by over 80pc during this period.

Another key element of every budget speech is about how the status quo tax structure can no longer be sustained. This author has been hearing these pronouncements since the time of Shaukat Aziz — my memory does not go back further than this — who highlighted decades ago that “every citizen must share the cost of governance by paying a share of his income”.

Finance Minister Muhammad Aurangzeb is likely to make a similar case during his speech, but as they say, the devil lies in the details.

So when you look at the tax revenue target, be careful about two things: what is the real growth in tax revenues compared to last year (this is the nominal growth minus the rate of inflation), and what are the mechanisms through which this target will be met.

It is highly likely that the revenue goals will be met through a growth in regressive taxes and squeezing more out of existing taxpayers, such as salaried individuals and formal businesses. If this is the primary driver of tax revenue growth, then know that despite the rhetoric, the government is not going to make those who are out of the tax net pay a fair share of taxes to the government.

As a result, the tax-to-GDP ratio — a gauge of a nation’s tax revenue relative to the size of its economy — will barely change and the tradition of successive governments pursuing a status quo policy will continue. And it is worth reminding ourselves that it is status quo policies that have led Pakistan into the crisis the country is in today.

Debt servicing, interest payments

The total tax revenue collected by the sovereign in fiscal year 2022-23 was almost Rs7,200 billion, out of which Rs5,200bn was spent on debt servicing, meaning that only 27pc of all tax receipts were left to pay for everything else, including defence, pensions, and development projects.

This is why it is critical to see what the debt servicing goal is for the upcoming year and compare that to the tax revenue targets for the government. Given the dire financial conditions of the sovereign and its continued reliance on debt to pay for even the most necessary of expenses, it is also critical to keep an eye on the expected interest payments the government is projecting in the coming year. This is also an indicator of the interest rate (and by extension inflation) projections of the finance ministry.

Both these figures are critical if you are a citizen: the interest rate will signal what the cost of capital is going to be in the country moving forward, which has all sorts of implications on growth, business investments, and job creation. Inflation projections are critical for ordinary citizens to pay for their own future and get a sense of what kind of salary raises they will need, in addition to planning for an increase in the cost of living over the course of the year.

Privatisation receipts and their contribution to public finances

Much has been said about the need for aggressive privatisation in the past few months. The government is trying to make an aggressive push to privatise the Pakistan International Airlines (PIA), and the IMF along with other entities is encouraging the Sharif government to offload state-owned enterprises. The privatisation receipts target is a critical number to watch in the budget as it signals two key things: firstly, the sovereign’s commitment to offloading government assets and secondly, the overall contribution of these potential receipts to the government’s revenues.

Targets can be misleading, however, as evidenced in the past: the 2022-23 fiscal year projection was Rs96bn in privatisation receipts, but the actual amount realised was Rs1.3bn, a mere 1.4pc of the target.

Given the government’s credibility challenge, especially when it comes to privatisation, the target it sets for itself will be quite telling. How aggressive the finance minister is when it comes to this particular category will cement the government’s reputation when it comes to wholesale reform of the economy.

How the sovereign will pay for its expenses

In conclusion, there is going to be a lot of noise created by plenty of announcements during the budget. The key issue at hand is the fiscal sustainability of the Islamic Republic of Pakistan. Best to focus on the signals about the sovereign’s fiscal trajectory and ignore the rest of the drama around the budget.

The budget and its credibility will determine how quickly the IMF programme will proceed. A budget that misses the mark will create uncertainty about macroeconomic stability. Given the nature and structure of this government, such an event is unlikely. However, keeping the IMF happy will mean that political capital will have to be spent, and given the broader political dynamics in Pakistan, the focus will quickly shift from the budget to politics as the government seeks to meet the targets it has set for itself.