The Economic Survey of Pakistan 2024-25 and Budget 2025-26 indicates that although the current government has succeeded in stabilizing the economy, it is far from the goal of a sustainable high economic growth rate that would lower the levels of poverty and unemployment and put the country on the rapid track of economic prosperity.
It seems that high -level government officials are insufficiently aware of the prerequisites for a sustainable high economic growth rate and improving the economic well -being of the ordinary citizen.
Pakistan’s success in getting the upper hand of the recent military three -day with India was reassuring in so far as the established credibility of Pakistan’s security deterrent.
But it also bears the risk of Pakistan’s leaders and decision makers ignoring the demands of Pakistan’s long -term security, which is based on economic and technological strength and scientific progress more than anything.
The Economic Survey 2024-25 highlights the government’s results in stabilizing the economy, while revealing its failure to essence essentially to accelerate economic growth rate, reduce poverty and unemployment significantly and increase the development of the education and health sector.
The current government can rightly take some credit for stabilizing the economy by gradually converting an unsustainable high level of deficits on the current accounts estimated to be 4.7% of GDP ($ 17 billion) in 2021-22 to a profit estimated to be $ 1.9 billion in the first ten months of the current financial year.
Similarly, it is a matter of considerable satisfaction that the consumer price index or inflation has dropped sharply from 29.2% in 2022-23 to 4.7% in the period from July-April 2024-25.
But in addition to the above positive indicators, the government’s financial performance has left much to be desired.
Unfortunately, the GDP growth rate remained low with 2.7% in the first ten months of the current financial year, not enough to improve people’s living conditions, relieve poverty or acquire employment to the new participants in the job market.
Unfortunately, the national health expenses remained low with 0.9% of GDP in 2023-24 and will probably remain at the same low level in the current financial year.
Even more disappointing was the low national expenses for education, which were estimated at only 0.8% of GDP in the first ten months of 2024-25 against the UNESCO recommendation that such expenses should be at least 4.0% of GDP.
The low education costs show that most of our youth when they enter the job market would either be illiterate or semi-literate in the light of the challenges of the modern knowledge-based world, where progress in science and technology is an indispensable condition of progress.
The budget for 2025-26 with a modest GDP growth target of 4.2% versus 2.7% in the outgoing financial year, the government’s continued focus on fiscal discipline and economic stability against the need for a high growth rate for the economy reflects a significant prerequisite for relieving poverty and lowering of diversity.
The government therefore remains far from the ideal combination of a high GDP-Væktrate that exceeds 6-7% per year and a stable economic environment characterized by a balanced budget, surplus on current account and low inflation. This is mainly due to the fact that the government has so far failed to create the necessary structural reforms to achieve these goals.
As regards the issue of tax balance, the basic problem is the low level of tax-to-BNP conditions in Pakistan, which does not provide enough resources to the government to meet its essential current and developmental requirements. During the outgoing financial year, the tax-to-BNP relationship is expected to be about 8.0% despite the government’s high allegations of the reforms it introduced to streamline and improve the tax system.
Going after FBR’s previous performance is unlikely that the tax-to-BDP ratio over 2025-26 would exceed 10%. It is worth remembering that the average tax-to-BNP relationship in developing countries is estimated to be approx. 15%, and ideally it should be over 20% in our case.
Our unsatisfactory performance in the collection of taxes is the main reason for our multi -year high levels of tax deficits and our inability to finance major development projects through government resources rather than relying on domestic and external loans. The former crowded domestic lending to the private sector, and the latter increases the external debt burden.
The only way to turn this unfortunate situation is to extend the tax base to cover the income earned in the agricultural sector, real estate and retail, in addition to reducing the tax exemptions allocated to various elite classes in the country. This must be combined with a savings person to limit the government’s current expenses. Unfortunately, budget 2025-26 does not go far enough in this direction.
Our national savings rate, which is estimated to be approx. 14%of GDP in 2024-25, is much lower than the comparable national savings rates for India (about 30%) and Bangladesh (about 34%). A high national savings rate enables a country to finance a high rate of national investments through domestic resources, thereby achieving a high GDP growth rate without having to depend on foreign loans or investments.
Our low national investment rate, which is estimated to be approx. 13.8%, explains the low GDP growth rate in the outgoing financial year. The moral is that if we want to speed up our GDP growth rate to a level above 6.0%, we will have to raise our national investment rate to over 25% of GDP, provided a capital output ratio of 4 to 1.
Further, if we do not want to rely excessively on loans from abroad to finance this high level of investment, we must also raise our national savings rate to 25% of GDP or even higher. The most important guilty that prevents us from achieving the desired high level of national savings is the dependence on the Pakistani prevailing elite to the eye -catching way of life.
The budget does not contain valuable initiatives to move the country in the desired direction by significantly raising our national savings rate.
The federal budget in its current form is a symbol of mediocrity and manifests all diseases of elite recording. It betrays evil ignorance of the most important drivers of economic progress in the modern knowledge -based world. It continues the looting and looting of the nation’s resources through continued conspicuous consumption, undeserved tax exemptions and other privileges.
It provides a little relief to the poor and dismantled through a rapid increase in GDP -Væktrate, relief of poverty and improving employment opportunities.
Failure to take the necessary financial initiatives to increase the GDP growth rate quickly and sustainably and accelerate scientific and technological progress in the country also jeopardizing Pakistan’s long-term security.
The author is a retired ambassador and author of ‘Pakistan and a world in the disorder-one magnificent strategy for the twenty-century’. He can be reached at: [email protected]
Disclaimer: The views expressed in this piece are the author’s own and does not necessarily reflect geo.tv’s editorial policy
Originally published in the news
