The economy and the budget

Out-of-the box solutions are needed for the economy to be competitive and productive

The economy and the budget


n June 11, the Economic Survey of Pakistan, and on June 12, the budget for the fiscal year 2024-2025 were presented by the finance minister, Senator Muhammad Aurangzeb.

The Economic Survey is the report of the federal government on the economic activity in the fiscal year that ends on June 30; it provides a comparison with the economic performances of past governments.

Statistical highlights show that in the fiscal year 2022-2023 (revised estimates) Pakistan’s GDP was $338.2 billion and in 2023-2024 (projected estimates) was $374.9 billion (or $36.7 billion more than the previous fiscal year). The GDP growth rate in 2022-2023 was –0.2 percent and in 2023-2024 was 2.4 percent. Agriculture growth rose from 2.3 percent to an impressive 6.3 percent; manufacturing rose from –5.3 percent to 2.4 percent; commodity production rose from –0.5 percent to 4.0 percent and the services sector rose from –0.01 percent to 1.2 percent in the same period. Per capita income rose from $1,551 in 2022-2023 to $1,680 in 2023-2024. The GDP deflator was 25.8 percent in 2022-2023 but declined to 23.2 percent in 2023-2024. The consumer price index or inflation was an average of 29.2 percent in 2022-2023 but declined to an average of 26.0 percent in 2023-2024.

The economic indicators of the Economic Survey also show that between 2022-2023 and 2023-2024, total investments (as a percentage of the GDP) in the country declined from 14.1 percent to 13.1 percent. Fixed investments declined from 12.4 percent to 11.4 percent. Public investments declined from 3.0 percent to 2.8 percent. Private investments declined from 9.5 percent to 8.7 percent. National savings declined from 13.2 percent to 13.0 percent. Foreign savings declined from 1.0 percent to 0.2 percent. Domestic savings rose from 7.0 percent to 7.2 percent during this period.

On the external side, the Economic Survey data shows that from 2022-2023 to 2023-2024, Pakistan’s exports grew from -14.2 percent to an impressive 9.3 percent but as percentage of GDP declined from 8.2 percent to 6.1 percent. On the other hand, imports to Pakistan rose from –26.3 percent to -8.0 percent, and as a percentage of GDP declined from 15.6 percent to 10.3 percent in the fiscal years period under review. Workers’ remittances from abroad rose from –12.6 percent to 1.0 percent. Trade deficit (as a percentage of GDP) declined from 7.3 percent to 4.2 percent and balance of payments deficit declined from 1.0 percent to only 0.1 percent of the GDP of Pakistan in the period under review.

In absolute terms, between fiscal years 2022-2023 and 2023-2024, Pakistan’s exports of goods increased from $21.0 billion to $23.0 billion while imports of goods to Pakistan declined from $42.1 billion to $38.8 billion, and services balance increased from $-0.4 billion to $-1.66 billion, thus decreasing the trade deficit from $-20.1 billion to $-15.8 billion. Worker’s remittances increased from $20.85 billion to $21.04 billion. Current account deficit decreased from $-4.05 billion in 2022-2023 to only $-0.5 billion in 2023-2024.

An analysis of the budget data of the outgoing fiscal year 2023-2024 (revised estimates) with the projections of the next fiscal year 2024-2025, shows that tax revenue in the 2023-2024 budget was Rs 9.4 trillion but the revised estimates show that FBR collected Rs 9.25 trillion (a shortfall of Rs 0.25 trillion) but the 2024-2025 budget aspires to collect almost Rs 13 trillion, or an increase of Rs 3.75 trillion. In 2023-2024, direct taxes were estimated at Rs 4.25 trillion; the revised estimates show a collection of Rs 3.72 trillion (or a shortfall of Rs 0.53 trillion) but the 2024-2025 budget has projected to collect Rs 5.5 trillion from direct taxes (an increase of Rs 1.78 trillion). It is interesting to note that in 2023-2024 indirect taxes of Rs 5.16 trillion were to be collected, but the revised estimates show that the FBR collected Rs 5.53 trillion (Rs 0.37 trillion more than the estimates). In the 2024-2025 budget, Rs 7.46 trillion are projected to be collected under this head, which is almost Rs 2.0 trillion more than the outgoing year. This also means that collecting Rs 2.0 trillion from indirect taxes would put the burden on the general public and would have inflationary pressures on both the demand side (that should further decrease) as well as the supply side, affecting the productive capacity of the private sector.

On the expenditure side, Rs 13.34 trillion was estimated for current expenditures in 2023-2024 but the revised estimates show that Rs 14.33 trillion (almost Rs 1 trillion more) was spent during the outgoing period. In 2024-2025 budget, Rs 17.2 trillion is estimated to be spent on current expenditures (or Rs 2.8 trillion more than the previous fiscal year). The total development expenditure in 2023-2024 was projected at Rs 1.6 trillion but revised estimates show an expense of Rs 1.5 trillion (or a reduction of Rs 0.1 trillion) on development. In the 2024-2025 budget this expenditure on development is projected at Rs 2.0 trillion (Rs 1.5 trillion more than the previous year’s spending on development. In the revised budget 2023-2024, the total expenditures of the federal government were Rs 18.4 trillion, while in the 2024-2025 budget, the total expenditures are projected at Rs 24.4 trillion, or Rs 6.0 trillion higher than the outgoing year. In 2024-2025, foreign loan repayments would be Rs 5.17 trillion. From the current accounts, Rs 9.8 trillion are projected as debt servicing which is almost 57 percent of the current expenditures and 40 percent of the entire budget expenditure 2024-2025. Rs 2.13 trillion would be spent on defence (Rs 1.29 trillion more than last year’s defence expenditures) which is 12.4 percent of the current expenditures and 8.7 percent of the entire budget 2024-2025.

Together debt servicing and defence take up almost 70 percent of the current expenditures of the budget 2024-2025 leaving only 30 percent of the current expenditures to be spent in fiscal year 2024-2025 for social services, law and order protection, and other government ministries etc.

The economy has recovered because of contractionary monetary and fiscal policies of the government in 2023-2024. With a population of almost 250 million, and not-very-friendly external neighbours, Pakistan needs both food security and robust defence. Moreover, the country needs a productive labour force, cheap energy and water reservoirs. In order for the economy to grow faster its productive capacity of its four factors of production in exportable industry products supported by enhanced agriculture production is needed. Unemployment has to be reduced. Only then can the economic growth of the country become sustainable. This is a tall order, when energy sources are neither clean, nor cheap; when water reservoirs are old and their capacity diminished and the 2,700 glaciers on the mountains are melting due to global warming; when floods threaten half of the country and heatwave and drought threaten the other half due to climate change. A large part of the youth is unproductive due to lack of 21st Century educational facilities and skill training. Small farmers and small businesses are threatened by cost-push inflation and lack of viable market competitive mechanisms or reforms. The country lacks R&D, therefore, both financial as well as technological resources are imported. Forty percent of the GDP is Pakistan’s external debt and 50 percent of the country’s GDP is internal debt. No nation can survive with an unproductive population, mismanagement of resources and 90 percent of the GDP as its debt. Serious out-of-the box solutions are required for the economy to become competitive and productive. A small but efficient government and comparative private sector with the ability to educate, give skills, and employ our future generations is the only viable solution.

The writer is a professor of economics and a former chairman of the R&D Committee at University of Central Punjab. He can be reached at

The economy and the budget