ISLAMABAD: Pakistan has unveiled a budget aimed at bolstering growth with tax cuts for businesses while also making an effort to preserve fiscal gains amid rising oil prices.
In his speech to lawmakers in parliament, Finance Minister Muhammad Aurangzeb outlined a budget willing to boost taxes but also provide some tax relief and industrial incentives.
The government is targeting 4% growth in the next fiscal year after the economy is estimated to have expanded 3.7% in the year through June, the strongest performance in four years.
With the fiscal deficit at its narrowest level in two decades, the government is under pressure to show that hard-won fiscal gains can translate into stronger growth.
Prime Minister Shehbaz Sharif’s administration has spent much of the past two years restoring macroeconomic stability through spending restraint, higher taxes and reforms demanded by the International Monetary Fund (IMF).
The government prioritised tax relief for the salaried class and the housing sector while meeting IMF-backed fiscal targets. So far this year, the Pakistan rupee has been the most stable currency in Asia.
“The budget marks the change from stabilisation to growth, albeit in a very controlled and mild manner,” said Ahfaz Mustafa, chief executive officer at Ismail Iqbal Securities Pvt.
“The government should be cautious because imports increase whenever housing is given a relief.”
The room for manoeuvre may be limited as the Middle East conflict pushes up global oil prices and lifts Pakistan’s inflation rate to 11.7%, the highest in two years.
Pakistan’s central bank has already surprised markets with an interest rate increase aimed at containing inflationary pressures, and analysts are watching today’s policy decision for signs of further tightening.
Pakistan committed to a primary surplus of 2% of gross domestic product in fiscal 2027, a goal mentioned by the IMF in May that will require further fiscal consolidation through stronger revenue collection and spending restraint.
It’s still a drop from 2.5% in the current year.
The government targets increasing revenue by 18% to 15.3 trillion rupees in taxes in the upcoming fiscal year.
This will be difficult to achieve, said Mustafa.
Pakistan’s government has reduced development allocations for provinces by roughly 25% in the fiscal year in a rare move. — Bloomberg
