With eyes on IMF bailout, FinMin Aurangzeb unveils federal budget 2024-25

FinMin Aurangzeb unveils federal budget 2024-25

ISLAMABAD, JUN 12: In a high-stakes move fraught with political tension and economic urgency, Finance Minister Muhammad Aurangzeb presented his maiden federal budget for the fiscal year 2024-25, as Pakistan aims to secure a critical long-term bailout from the International Monetary Fund (IMF).

Aurangzeb, a first-time finance minister, unveiled the budget in the National Assembly amid a noisy protest by the opposition lawmakers belonging to Pakistan Tehreek-e-Insaf (PTI)-backed Sunni Ittehad Council — who stood on their desks, raised anti-government slogans and tore the copies of the Finance Bill 2025.

“Despite the financial and political challenges during the past one year, the government’s progress on the economic front has been impressive,” the finance minister said in his opening remarks.

“We have heard the talk of all political parties to sit together in the country’s interest several times. Today, the nature has provided Pakistan with another chance to walk on the path of economic progress and we can’t afford to waste this opportunity,” he said while requesting all the MNAs to cooperate with the government putting the country on the path of progress.

“A while ago, Pakistan’s economy faced a difficult situation as the State Bank’s reserves were enough for only less than two weeks of imports. The value of the rupee depreciated by 40%, economic progress was almost nil, and inflation had reached a level that the people were going below the poverty line at a fast pace. Coming out of this situation seemed difficult,” said the minister.

He also praised the previous government for striking a short-term standby agreement with the IMF, which he said paved the way for economic stability and ended uncertainty “at a point when the previous IMF programme was about to end and reaching agreement on new [IMF] programme was uncertain”.

The finance minister said the GDP growth rate is expected to remain 3.6%, in the next fiscal year while the inflation is expected to come down to 12%.

He said the budget deficit is 6.9% of the GDP and the primary surplus to remain at 1% of the GDP.

The tax collection by the Federal Board of Revenue (FBR) is estimated at Rs12,970 billion which is 38% more than the current fiscal year.

Therefore, the province’s share in the federal tax collection will be Rs7,438 billion.

The federal government has set a non-revenue target at Rs3,587 billion, while the Centre’s net income is Rs9,119 billion, the finance minister said adding that total federal expenditures have been estimated at Rs18,877 billion of Rs9775 billion will be spent on interest payments.

“PM Shehbaz-led coalition government deserves felicitations for untiring efforts for the revival of the economy,” he added.

Aurangzeb further stated that inflation, which was the centre of attention of Prime Minister Shehbaz Sharif and his team, came down to almost 12% in May leading to a decrease in the prices of essential commodities.

“It is not an ordinary achievement in the light of existing challenges,” he said, predicting further drop in inflation. The minister further stated that the foreign exchange reserves have also been stable.

He said that the recent cut in the interest rate by the SBP was proof of the government’s efforts to bring down inflation.

Key takeaways

Targets 3.6% economic growth for FY2024-25
Fiscal deficit seen at 6.9% of GDP for FY2024-25
Total spending estimated to be Rs18.9 trillion ($67.84 billion) in FY2024-25
Expects debt servicing of 9.8 trillion rupees in FY2024-25
Defence expenditure of 2.1 trillion rupees expected in FY2024-25
Pension payments seen at 1 trillion rupees in FY2024-25
Total subsidies projected at 1.4 trillion rupees in FY2024-25
FinMin Aurangzeb said that the Public Sector Development Programme (PSDP) plays a key role in the development, prosperity and social welfare of the country.

“This works as a catalyst for the modernisation, expansion, basic infrastructure and sustainable development,” he added.

The minister said that the government devised the history’s biggest PSDP for the fiscal year 2024-25, which is worth Rs1,500 billion.

He said that this volume is 101% bigger than last year’s revised volume.

Rs100 billion has been earmarked for the Pakistan Peoples Party’s (PPP)-projects, he said adding that the developmental budget was a display of the government’s commitment to deal with the challenges in the administration of affairs related to as infrastructure development, transportation, energy, IT and water resources, in these difficult times.

In the PSDP 2024-25, the completion of ongoing projects has been prioritised with up to 83% of resources allocated for the ongoing projects and only 17% of resources for new projects.

The minister said that the federal government is responsible for the basic infrastructure and a proposal for the allocation of 59% funds for this sector in the PSDP for the fiscal year 2024-25 has been made.

Meanwhile, allocating 20% of the developmental budget to the social sector has been proposed.

The minister said that it was a constitutional responsibility to ensure a balanced local development, that’s why, 10% of the funds have been reserved for the districts merged into Azad Jammu and Kashmir, Gilgit Baltistan and Khyber Pakhtunkhwa, while approximately 11.2% of resources have been earmarked for the IT, telecommunication, science and technology, governance and production sectors.

Aurangzeb said that projects prioritised in the PSDP meet the given standards under the the guidelines approved by the National Economic Council (NEC):

The strategic and core projects that give special attention to the water resources, transportation, communications and energy sectors
The projects based on foreign aid so that they get completed in due time
Projects in all sectors on which more than 80% expenditure has been made and which can be completed within FY25 and provide financial and economic assistance to the economy
In his speech, the finance minister said that the Federal Board of Revenue (FBR) had imposed Corporate Income Tax reforms from 2019-2023. Now, he said, there’s a need to impose personal tax reforms so that it can be bought in line with international standards.

Considering this, he said, the minimum tax slab will remain the same at Rs600,000 (annual income) and the maximum tax slab will also remain unchanged.

“There are some changes proposed in tax slabs. There’s also a proposal of keep the maximum tax rate at 45% for non-slaried people,” he added.

The finance minister, noting that the government was ready to support the export sector, said that it would now fall under the normal tax regime.

To increase tax collection from the real estate and securities sector, he said that irrespective of the holding period, a 15% tax would be imposed on filers and up to 45% on non-filers under different slabs. “This will help document the economy.”

Moreover, he said, that different tax slabs would be introduced for filers, non-filers, and those who file their returns late on the purchase of immovable properties.

He also proposed that tax should be imposed on the rate of the car instead of its engine capacity. Aurangzeb said there’s a proposal to end zero rating, exemptions, and reduced rates.

The finance minister said that the government took into account several exemptions and concessions, following which it was decided that some of them should end.

He also proposed that the taxes on TIER-I Retailers should be increased from 15% to 18%.

Aurangzeb said that Benazir Income Support Programme (BISP) possesses the status of a cornerstone of the country’s social welfare measures from which millions of families receive cash assistance.

The incumbent coalition government aims to provide maximum assistance to the weak segments of the Pakistani society, he said. The financial aid of the weak segments will be continued under the BISP via the budget 2024-25, he added.

The finmin announced that the federal government decided 27% hike in the BISP allocations by up to Rs593 billion in the next fiscal year.

The details of the BISP allocations in the budget are given below:

Kafalat programme: The number of individuals who are getting benefits from the social welfare programme will be increased from 9.3 million to 10 million. Subsequently, the cash assistance will also be hiked for protecting the deserving families from inflation impacts.

Benazir Taleemi Wazaif: The federal government decided to register 1 million more children from underprivileged families in the conditional cash transfer programme aimed at promoting education.

Benazir Nashonuma: The government will include 500,000 more families to the programme aim at providing nutritional support to mothers and children and stopping “stunting” of children during first 1,000 days after their birth.

BISP new programmes: For promoting economic inclusion and improving financial status of nationals, the federal government is going to launch a new proverty graduation and skills’ development programme under the BISP’s flag.

Additionally, the government also plans to introduce a hybrid social protection programme for promoting financial self-sufficiency.

Salaries and pensions
The finance minister said that the government would adopt a three-pronged strategy to reform the pension scheme in line with international best practices.

The minister said that the government had to pay unfunded pension liability, which was increasing every year. He said after reforms in the pension scheme, the pension liability would be reduced considerably in next three decades.

The minister said that for fresh employees, a contributory pension scheme would be introduced for which the government would deposit its share every month.

Moreover, a pension fund would be created to manage the liability, he added.

He also proposed a 20-25% increase in the salaries on ad-hoc basis and 15% enhancement in the pensions of the federal government employees, realising their financial hardships due to the increased inflation.

The minister said despite financial constraints, the government had decided to give 25% ad-hoc relief in the salaries of employees from Grade 1-16 and 20% to Grade-17-22 employees aimed at increasing their purchase power.

He also announced to increase the minimum wages from existing Rs32,000 to Rs 36,000 per month.