As the global spotlight shines on the G20 summit in India next month, smaller economies, like Pakistan, often find their stories buried in the folds of newspapers. When Pakistan’s story is reported it is often in negative light and about non-economic events. While international news grabs headlines, it’s crucial not to overlook the intricate financial landscape of the Islamic Republic of Pakistan. Let’s delve into the fiscal intricacies that shape its economy.
Pakistan’s economy, with a GDP of $376 billion (2022), stands 42nd in the global ranking. Beyond these numbers lies a comprehensive analysis of the nation’s financial health—a story not often told. The budget document, a financial compass of a nation, encapsulates expenditures and revenue sources, providing insights that shape its economic trajectory.
In the spotlight of my analysis is the budget expenditure for FY 2023-2024. The government has earmarked Rs 48.3 trillion ($173 billion at an exchange rate of ~280), marking a notable 20.8% increase over last year’s revised budget estimate. The government target for GDP growth for FY 23-24 is 3.5%. As shown in Figure 1, a staggering 85.8 % of the budget is allocated to loan repayment and interest payment of those loans. Leaving only 7.7 % ($13.2 Billion) of the total budget expenditure for development purposes. A woefully low number for a country of 231 million people increasing at a rate of about 2% each year.
Beyond the numbers, a more profound narrative emerges. The budget lacks substantial provisions for critical sectors like education, healthcare, industry, and infrastructure—building blocks of a prosperous society. However, the most striking revelation pertains to the ever-increasing defense expenditure. The Pakistan government, being subservient to the Army, allocated 30% (~7.4 billion) of the non-debt expenditure to the defense establishment. Leaving only $17.08 billion or 10% of the total expenditure for all other expenditures such as day-to-day operations, salaries to government employees, spending on infrastructure, schools, universities, hospitals, and social services.
Figure 1: Data from Pakistan Govt. Annual Budget Statement
The budget also lays bare Pakistan’s intricate debt scenario. With 78% (figure 2) of budget receipts sourced from debt—both internal and external—the nation treads a precarious path. A mere 19% of government receipts stem from taxation, contributing to a cycle where new debt funds old debt, perpetuating a downward economic spiral. Diminished economic growth and lackluster investments further squeeze the role of taxes in the fiscal pie.
Figure 2: Data from Pakistan Govt. Annual Budget Statement
A curious divergence emerges between the budgeted amount ($119.4 billion) and the revised estimate ($143.2 billion) for FY 2022-2023 expenditures, a staggering 20% difference primarily attributed to increased principal and interest payments on loans. This is a further testament to the lack of foresight and inadequate planning on the part of the government. This paints a grim picture of the current budget numbers that they would be revised, additionally with GDP growth to a lower estimate and debt to a higher number.
In the face of these challenges, Pakistan’s economy stands at a critical juncture. An escalating economic crisis, coupled with a burgeoning population and youthful demographics, presents a formidable convergence. The crisis is a result of 75 years of religious identity policies and subjugation of its minority population. The question that looms is whether the nation can navigate away from the precipice of an economic catastrophe and avert a potential collapse. The answer, inevitably, lies in the pages of time.
