There have been periodic calls for continuity in economic policies, regarded as critical by successive economic team leaders, to achieve development – a call that in the past decade or two has been couched under the not so innovative title ‘charter of economy’ – drawing from the 2006 ‘charter of democracy’ signed by the then two national party leaders - Benazir Bhutto and Nawaz Sharif.
A look at the budgets for the past two and a half decades – inclusive of Musharraf’s military dictatorship followed by the administration led by all three national parties - reveals that economic policies have been remarkably consistent: a constant thrust towards raising revenue from existing easy to collect taxes rather than through reforming the existing inequitable, unfair and anomalous tax structure, and a steady rise in current expenditure funded by external and domestic borrowings.
The annual budgeted rise in public sector development programme continues to be used to proclaim a pro-poor budget though by the end of the year its outlay is slashed to bring the deficit to sustainable levels, especially during times when the country is on an International Monetary Fund (IMF) programme – a condition with little relevance as the country is currently on its twenty-fourth programme, average duration three years, in its 78-year history.
Since the establishment of the Benazir Income Support Programme (BISP) in 2008 there has been a steady rise in its budgeted allocation (in spite of attempts to change the name by rival parties - Income Support by the PML-N during 2013 to 2018 and Ehsaas from 2018 to 2022); however, this rise has failed to keep pace with the rise in poverty levels that today stands at a disturbing high of 44.7 percent as per the World Bank.
Pakistan’s boom-bust cycle syndrome cited by domestic independent economists for decades was noted in the September 2024 IMF document titled staff level agreement on Pakistan’s request for extended fund facility arrangement – a back handed reference, however oblique, to consistency in flawed policies: “Economic volatility has only increased over time, with a tight correlation between Pakistan’s boom-bust economic outcomes and its macroeconomic policies. The repeated attempts to boost economic activity through fiscal and monetary stimulus have not translated into durable growth, as domestic demand increased beyond Pakistan’s sustainable capacity, resulting in inflation and depletion of reserves, given a strong political preference for stable exchange rates. Each subsequent bust has further harmed Pakistan’s policymaking credibility and investment sentiment.”
Changes in policies between administrations have largely been limited to favouring one particular elite sub-sector over another (exporters, sugar millers, other productive sectors, and/or rich landlords).
The IMF in its October 2024 documents noted that fiscal and monetary incentives roundly failed: “The government’s intervention in price setting, including for agricultural commodities, fuel products, power, and gas (biannual), combined with high tariff and non-tariff protection tilted the playing field in favour of selected groups or sectors. Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually “infant”) industries.”
Sadly, there has been no attempt to reduce overall elite capture with the possible exception of amnesty schemes, strongly opposed by multilaterals who maintain that these schemes work to the detriment of the honest taxpayers, as well as by local economists who point out that these schemes have been used to whiten black money amassed by the elite.
The use of the amnesty schemes continued till the IMF’s insistence in 2023, on pain of cessation of an approved programme loan, that there be no more amnesty schemes. The following table is sourced to ICMA’s Research and Publications Directorate in its July-August 2018 issue.
April 2018 foreign assets’ declaration amnesty led to additional collection of 80 billion rupees – a scheme extended by the Khan administration which envisaged payment of 4 percent on previously undisclosed assets.
The government extended tax amnesty, the most controversial part of the package, for investors — builders and developers — for another six months to June 30, 2022, including the period for them to avail a fixed tax regime till the end of the calendar year. This, former Prime Minister Khan later explained, was the reason why Farah Gogi, a close friend of his wife’s, amassed a fortune during his tenure.
The ICMA comparison is with India, the USA, Australia, Canada, Belgium, Germany, Indonesia, Spain, and Italy however the comparison is not appropriate as these countries are rated investment grade (mostly upper medium and high grade) by the three international rating agencies, while Pakistan has never been rated as investment grade.
The government has budgeted a fiscal deficit decline from 7444 billion rupees in 2024-25 to 6501 billion rupees in 2025-26 (negative 943 billion rupees) while with a provincial surplus budgeted at 1464 billion rupees this year against 1009 billion rupees last year it has budgeted a reduced overall fiscal deficit from 6435 billion rupees last year to 5037 billion rupees. This however is contingent on the capacity to generate revenue as budgeted (without any policy shift towards reducing the current 75 to 80 percent –reliance on indirect taxes whose incidence on the poor is greater than on the rich) and massive reliance on a reduction in the discount rate reducing current expenditure (as all other heads have been raised as in the past) – a likelihood that is unlikely given the scale of devastation by the ongoing floods.
To conclude, in layman’s terms, the same-o, same-o continues with little change in the tax structure and the current budgeted allocations.
Copyright Business Recorder, 2025