The federal budget, which will be announced this Thursday, comes at a time of great economic uncertainty due to the pandemic. Pakistan is likely to continue to try and foster the growth achieved in FY21 which exceeded other regional economies.

Key expectations in the upcoming budget

Thursday’s announcement is preceded by conclusion of talks with the IMF for an economic review of the Extended Fund Facility (EFF). The government will use any further funds received to maintain a higher expenditure on the investment side and provision of subsidies.

Industries

The government continues to quote Large Scale Manufacturing (LSM) growth which is above historic averages. To maintain this growth, it is expected that policies which support ease of doing business will be put into place. It is also expected that relaxation or abolishment of unconducive tariff lines in key industries will be introduced to help bolster growth.

Social Safety

This is a key sector of the budget due to the ongoing pandemic with the country witnessing its third wave of infections. Globally, healthcare systems have been placed under stress and Pakistan also requires additional supplies and infrastructure in the sector. The National Command and Operation Center, which has been charged for a coordinated response to the virus, announced (when?) that $1bn has been set aside for vaccine procurement.

We can expect to see further spending in the health sector and controlling inflationary pressures by the government under the continued umbrella of the Ehsaas program. An upward revision in minimum wage rate has also been proposed. The fight against the pandemic will require continued economic support from the government.

Fiscal Targets

Under the ongoing IMF program Pakistan will likely continue to raise taxes and bring more people into the tax net. This translates into ambitious targets set for tax collection. The Federal Board of Revenue target for collection is expected to rise to around PKR 5.8TLN which will still lead to an estimated budget deficit of 5%-6%.

The government is expected to continue increasing funding for public sector development programs for improvement of infrastructure while providing jobs in key sectors. The higher tax collection target can only be achieved by bringing more people into the direct tax net. Further restrictions and rules against non-filing of tax returns are expected.