Islamabad, October 31, 2023 – In a bid to achieve long-term fiscal sustainability, Pakistan has set its sights on eliminating tax exemptions.
This significant move was announced in a monthly economic review for October 2023, released by the Ministry of Finance, underlining the government’s unwavering commitment to responsible fiscal management.
The measures adopted by the government are primarily focused on rationalizing expenditures through austerity measures, reducing subsidies and grants, avoiding supplementary grants, increasing revenues through various policy and administration initiatives, widening the tax base, and phasing out tax exemptions. These steps are seen as pivotal in building fiscal reserves to support social safety nets and meet the fiscal and primary balance targets for the current fiscal year.
The government’s commitment to fiscal consolidation is evident from the improved fiscal accounts during the first quarter of the current fiscal year. The fiscal outlook for FY2024 shows promising revenue growth and prudent expenditure management. Notably, a substantial increase in net federal revenues, driven by a significant rise in non-tax collections, reflects a positive trend in revenue performance. Higher-than-expected tax collection in the first quarter of FY2024 underscores the effective implementation of new tax measures, a modest revival of economic activities, and efficient tax administration.
However, the ministry highlighted that higher markup payments will continue to pose significant challenges for fiscal consolidation efforts on the expenditure side. Nevertheless, cautious expenditure management has paid off, leading to a restricted growth in non-markup spending. This has contributed to maintaining a primary balance surplus, indicating improved fiscal management. The fiscal deficit has also remained at a similar level, standing at 0.8 percent of GDP in Jul-Aug FY2024, compared to the previous year.
The Ministry of Finance’s outlook for the first quarter of FY2024 suggests that Pakistan’s economy is yielding positive results from development and government stabilization measures. In the real sector of the economy, there has been exceptional growth in cotton and rice production for 2023-24, with increases of 126.6 percent and 18.0 percent, respectively. Large Scale Manufacturing (LSM) showed a 2.5 percent increase on a YoY basis in August 2023, and a month-on-month increase of 8.4 percent, rebounding from the 3.7 percent decline in July.
Furthermore, the external account has shown considerable improvement, and foreign exchange reserves are being rebuilt. The government’s dedication to fiscal consolidation and maintaining fiscal discipline is evident from the improved fiscal accounts in July and August of FY2024.
Looking ahead, the economic outlook remains positive, with expectations of continued economic activity throughout the fiscal year, thanks to a rebound in domestic economic activities and the alleviation of inflationary pressures. Coordinated efforts by government organizations to address macroeconomic imbalances signal a path toward stabilization in the coming months, ultimately leading to sustainable and inclusive economic growth in the medium to long-term.
Pakistan’s Headline Inflation Expected to Ease to 26.57% in October 2023
