Pakistan’s Budget for 2022–23 Faces Economic Difficulties


international trade and tax consultant, examines some of Pakistan’s economic and tax issues as well as the difficulties Pakistan’s new coalition government would face and the fiscal plans outlined in its 2022–23 budget.

In fragile economies, even a minor political upheaval can disrupt the entire process of a nation’s development, slowing down economic activity, instilling fear in the financial industry, and deviating the country’s progress towards economic security. All of these may lead to other issues. In Pakistan, this is exactly what took place roughly three months prior to the release of the government budget for 2022–2023.

The Budget’s Economic and Political Setting

The coalition administration is dealing with a pile of problems, including skyrocketing inflation, a significant depreciation of the Pakistani rupee against the dollar and other major world currencies, rising fuel costs, and dwindling foreign exchange reserves. The worry of a debt default hangs over all of these difficulties.

Recent data from the State Bank show that Pakistan has:

Net reserves of $8.8 billion, commercial bank reserves of $5.67 billion, a $17.41 billion current account deficit for the fiscal year 2021–2022 and a $3.13 billion balance of trade deficit for the fiscal year 2021–2022 and a $3.35 billion deficit for the month of July 2022.

Inflation measured by the national Consumer Price Index rose to 24.9% in July 2022 from 21.3% the previous month. GDP growth has been 5.97% so far this year, above the 5% target set for 2022–2023.

A large portion of Pakistan’s political history is made up of choices that were made without taking the economic repercussions into account. Also, a lot of prior governments failed economically because they lacked a competent group of economists who could create long-term economic plans. Governments failed to steer the nation towards sustainable development because they mostly relied on bankers or chartered accountants to govern the Ministry of Finance.Inconsistent economic policies, the pursuit of the wrong priorities, and poor governance are to blame for the ongoing economic issues. Pakistan hasn’t made much progress over the past 75 years because of this. Inconsistent fiscal policies have also led to unstable economic conditions. Subsequent administrations have altered fiscal priorities as a result.

In his budget speech, the new finance minister highlighted some of these facts:

Every year, a different person used to propose the budget, and every year, the government’s economic policies would change, which caused investors and development partners to lose faith in the administration.

“Taxes as a percentage of GDP are typically around 16% in emerging market nations, however they are currently 8.6% in Pakistan.”

The dismal economy has been attributed to the previous administration by each incoming administration, yet none of them has taken the country’s economic crisis seriously. Governments have enrolled in the International Monetary Fund’s programme to address fiscal issues and lower the budget deficit, but they then spend more (and make less money), allocating the majority of their income to paying down the debt.

Estimated debt servicing costs for Pakistan in the fiscal year 2022–2023 are 3.95 trillion Pakistani rupees ($17.9 billion). As of March 2022, the public debt was 4.44 trillion rupees, or 72.5% of GDP.

Pakistan’s tax governance remains weak. The state has never been able to create an iron will to collect revenue through good governance, better policies, and a strong tax culture. There is no serious documentation initiative to register retail businesses, even in large cities, and tax them according to their income.

Total tax collected in financial year 2021–22 is 6.125 trillion Pakistani rupees. The projected revenue for 2022–2023 is 7 trillion rupees. The Federal Board of Revenue often achieves its collection goals, but this does not imply that the money it has collected is the tax that a country with 220 million people should be paying. A rough estimate places the total amount of tax fraud at about 3 trillion rupees.

Despite assistance from the World Bank and other international organisations created to help reform and reorganise tax systems, successive administrations have failed to enhance tax governance. The government has raised taxes on those who currently pay them rather than reducing tax evasion and increasing the number of taxpayers. This has made firms even more burdened and hampered economic growth. Of Pakistan’s 220 million citizens, less than 2% file tax returns.

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