KARACHI: The government said the 2024-25 budget is anchored in sound fiscal and debt management principles.

“It provides a pathway for economic revival and stability, outlining strategic directions for government revenue generation and spending priorities,” said the budget document. It lays the groundwork for addressing fiscal deficits and reducing inflationary pressures in the short to medium term, it said.

“Strengthening the country’s external accounts and improving the balance of payments position are central features of the 2024-25 budget,” said the document.

Pakistan has been in a debt trap for years, but during the last couple of years, both the domestic and external debts crippled the economy and created uncertainty across the country.

The external debt repayment requirements forced the government to request donor agencies to relax new loans, approach friendly governments to roll over the previous loans, and ask them for dollars to place in the State Bank’s account to improve foreign exchange reserves.

Financing of Rs8.5tr required to meet FY25 expenses

According to the budget document, the total financing required to meet the expenses is Rs8.5 trillion for FY25. This includes both domestic and external financing. The debt servicing has already reached close to tax revenue.

The documents show that the government needs Rs7.8tr for domestic financing. The strategy indicates that the government will borrow Rs5.14tr from banks through T-bills, Pakistan Investment Bonds and Sukuk Islamic Bonds. It will also borrow Rs2.66tr from non-bank institutions like National Saving Schemes and others.

However, the external borrowing would be around Rs666 billion, which appears reasonable compared to the huge domestic borrowing plan. Last year, the government failed to borrow from commercial banks; in particular, it was unsuccessful in launching bonds in international markets.

The situation has not changed yet, and launching Eurobonds to raise dollars will be difficult. For external debt servicing, the government is relying heavily on rollover. In FY25, the government estimates to pay $25bn as external debt servicing. Recently, the State Bank said it has paid $2bn, and $8bn will be rolled over in the next two months.

A compliance risk management system is also being introduced to ensure compliance with tax laws, said the document. On the expenditure side, non-essential spending has been curtailed under austerity measures, and state-owned enterprises are being revamped for improved management and governance.

Going forward, this will create the necessary fiscal space for enhanced pro-poor spending, climate change mitigation, and the provision of quality public services. The Public Sector Development Programme (PSDP) has been allocated Rs1.4tr, a historically high figure, to ensure development work on energy and water sector projects, projects in the IT sector, and the special areas of Azad Jammu and Kashmir, Gilgit-Baltistan, and the merged districts of Khyber Pakhtunkhwa.

“Strengthening policy framework for revitalising the private sector, fostering entrepreneurship, encouraging investment, and promoting innovation to stimulate economic growth,” the document said, outlining the main objectives of the FY25 budget as economic stability and growth through fiscal consolidation and efficient use of public money. “Prioritising improvements in the country’s balance of payments position; bringing public debt to GDP ratio to sustainable levels,” the document added.

The budget aims to support vulnerable sections of society through pro-poor initiatives, improve service delivery/public good by funnelling more funds into PSDP, introduce sector-specific reforms and encourage innovation. The government plans to improve service delivery and public good by funnelling more funds into PSDP, introducing sector-specific reforms, and encouraging innovation. The strategy includes education and skill development for youth, as well as integration of green and gender-responsive budgeting into public finance management.

The government has set challenging revenue targets for 2024-25. This commensurates with the ongoing reforms at the Federal Board of Revenue (FBR), where end-to-end digitisation is on the cards. The use of AI will supplement this initiative as FBR automates its processes.

Published in Dawn, June 13th, 2024