EDITORIAL: The June monthly update and outlook, a publication of the Finance Division, claimed successes, are not backed by corresponding data. It began by maintaining that “Pakistan’s economy continued growth momentum in 2025, supported by strengthened macroeconomic fundamentals, prudent fiscal management, and improved external sector performance.” This can be challenged on three counts from data within uploaded in the Update.
First, with respect to the strengthened macroeconomic fundamentals the Update’s figures show that foreign exchange reserves with the State Bank of Pakistan on 20 June 2025 were 9.1 billion dollars — 6.9 billion dollars less than the rollovers that have been extended by the three friendly countries notably China, Saudi Arabia and the UAE; foreign investment declined from 1.58 billion dollars July-May 2024 to 1.35 billion dollars in the same period of 2024-25 with a decline in portfolio investment from negative 559.5 million dollars in 2024 to negative 624.4 million dollars in 2025 (ironically this decline of forewing portfolio investment had no impact on Pakistan Stock Market, which rose by 58.4 percent, which sceptics argue may be because the government remained reticent about taxing this sector); and consumer price index plummeted from 5.34 percent July-May 2024 to 2.29 percent in the comparable period of 2025 (though the poverty levels in the country rose to 44.2 percent as per the World Bank).
Second, prudent fiscal management is on the back of a massive rise in non-tax revenue from the rise in collections under petroleum levy (with the upper limit removed), an indirect tax whose incidence is on the poor more than on the rich.
Revenue from this source accounted for a whopping 21 percent rise in the revised estimates of 2023-24 from 2022-23 and in the current year’s budget the rise is projected at 26 percent more than last year – from 1161 billion rupees in the revised estimates of last year to 1468.39 billion rupees in 2025-26 with implications on the value of each rupee earned by the general public. For comparison it is relevant to note that the revenue from petroleum levy is 10 percent of FBR’s total projected tax collections for the current year.
And finally, external sector performance improved with a massive rise in remittances — from 27 billion dollars July-May 2023-24 to 34.89 billion dollars in 2024-25. Setting aside allegations of the State Bank of Pakistan purchasing dollars in the open market and crediting them under remittances, a charge levelled by some economists that were not refuted, the Independent Power Producers established under the China Pakistan Economic Corridor have sent numerous reminders to the government to clear their dues that have accumulated to 500 billion rupees (1.72 billion dollars).
Additionally, exports have improved by 4 percent July-May 2025 against the same period the year before; however, imports (raw materials and intermediate goods are required to propel growth) rose by 11.5 percent with the trade deficit rising to 24 billion dollars against nearly 20 billion dollars the year before. And the icing on the cake is the July-April 2025 negative 1.52 percent growth in large-scale manufacturing sector against positive 0.26 percent growth in the comparable period the year before.
The report further inexplicably maintains that the “ongoing International Monetary Fund programmes (Extended Fund Facility and Resilience and Sustainability Facility) along with upgraded credit ratings bolstered policy credibility and investor’s sentiment.” The credit rating by all three rating agencies, including the April upgrade, retain Pakistan at below investment grade and within the highly speculative indicative of material default risk with a limited margin of safety (largely defined as being on an IMF programme).
Furthermore, the claim that “the government remains committed to structural reforms, focused on tax harmonization, energy pricing, and privatisation…” is easily challenged as the reliance on indirect taxes is to the tune of nearly 80 percent of the total budgeted tax revenue — 60 percent from identified indirect taxes and 75 to 80 percent of direct taxes to be collected from withholding taxes levied in the sales tax mode, lower energy pricing is based on projected savings from renegotiated IPP contracts and borrowing over a trillion rupees from commercial banks at low rates (assumption that the discount rate will continue to fall), and privatisation is yet to kick off with the actual budgeted privatisation proceeds at only 87 billion rupees (around 300 million dollars).
The economy remains fragile and the general public is reeling under historically high poverty levels with resilience linked to continued assistance from multilaterals and friendly countries. It would have sent the right signal if expenditure had been slashed on all current expenditure items (which have all been raised) rather than through projecting a decline in the discount rate that would reduce the mark-up payable on past and lower budgeted loans in 2025-26 — a rate that can only be reduced with IMF staff concurrence who have repeatedly warned in their recent documents against reducing the rate without supporting data.
Copyright Business Recorder, 2025
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