Pakistan may restrict deficit at 4.9% of GDP if reforms successfully implemented
The government projects gross revenue at 14.3% of GDP and total spending at 15.2% of GDP
The Pakistani government has the potential to reduce the overall fiscal deficit to 4.9% of of the country's gross domestic product (GDP) if reforms are successfully implemented, according to a recent report by Arif Habib Limited (AHL), one of the oldest brokerages.
“The government projects gross revenue at 14.3% of GDP and total spending at 15.2% of GDP. While these targets are ambitious, there is potential for the deficit to be reduced even further, potentially down to 4.9% of GDP,” it stated.
For fiscal year 2024-25 (FY25), the Pakistani government has laid out a fiscal adjustment plan to reduce the overall fiscal deficit from 6.8% of GDP in FY24 to 5.9%.
This plan includes measures to enhance revenue and control expenditure.
Revenue
However, the Federal Board of Revenue (FBR) target of PKR 12.9 trillion for FY25 faces significant challenges due to economic conditions and tax collection trends, which may lead to shortfalls.
With about 40% of FBR’s revenue historically coming from import taxes, high tariffs and restrictions on non-essential imports, along with PKR stability, may result in lower customs duties and import sales tax collections.
Although the FBR expects additional revenue from GDP and LSM growth, inflation, and recent tax measures, the first four months have already missed the target by PKR 190 billion.
“Achieving FY25’s 40% revenue growth increase will hinge on robust enforcement and favorable economic shifts,” the report said.
Additionally, the authorities aim to generate significant non-tax revenue, with the State Bank of Pakistan alone contributing PKR 2.5 trillion in profits.
According to the FY25 budget, personal and corporate income tax reforms are expected to generate PKR 357 billion by including exporters into the regular tax regime and simplifying individual tax brackets.
Sales tax reforms are projected to generate PKR 286 billion by adjusting tax rates on various products. The expansion of Federal Excise Duty (FED) to cover property sales and other areas is expected to add PKR 413 billion to national revenues.
“Despite optimistic projections, we anticipate an overall shortfall in FBR collections for FY25, with total revenues likely to settle around PKR 11.7 trillion, an estimated 9.6% below the ambitious PKR 12.97 trillion target,” AHL claimed.
Broader fiscal health
Looking beyond FY25, the government’s broader fiscal strategy focuses on structural reforms to maintain fiscal health. This includes broadening the tax base, enhancing tax administration, combating evasion, and reducing corruption.
AHL suggests that collaboration between federal and provincial governments is crucial, with provinces expected to contribute to fiscal surpluses, targeting 1% of GDP in FY25.
The EFF with the IMF aims for gradual fiscal consolidation, with a long-term goal of achieving a primary surplus of 2% of GDP, supported by a 3% of GDP net revenue mobilization effort.
Popular
Spotlight
More from Business
Pakistan's inflation to ease to a 6-year low in November 2024
The CPI is predicted to drop to 4.7% in November 2024, down from 7.2% in October 2024
Comments
See what people are discussing