The economic survey of Pakistan 2024-25 and the 2025-26 budget indicate that, although the current government has managed to stabilize the economy, it is far from the objective of a high sustainable economic growth rate which would reduce the levels of poverty and unemployment and has put the country on the fast way to economic prosperity.
It seems that high-level government officials are not aware of the prerequisites of a high sustainable economic growth rate and the improvement of the economic well-being of the ordinary citizen.
The success of Pakistan to gain the upper hand in the recent military skirmishes with India was reassuring insofar as it establishes the credibility of the deterrence of the security of Pakistan.
But it also involves the risk that Pakistan leaders and decision -makers ignore the requirements of long -term security in Pakistan, which is based on economic and technological strength and scientific progress more than anything else.
The 2024-25 economic survey highlights government achievements in the stabilization of the economy while revealing its failure to considerably accelerate the rate of economic growth, reduce poverty and unemployment and improve the development of education and health sectors.
The current government can slightly take credit for the stabilization of the economy by gradually converting a level of unbearable current account deficit estimated at 4.7% of GDP (17 billion dollars) in 2021-2022 to an excess estimated at $ 1.9 billion in the first ten months of the current year.
Similarly, it is considerable to considerable satisfaction that the index or rate of consumer prices inflation is strongly increased from 29.2% in 2022-23 to 4.7% during July-Avril 2024-25.
But beyond the positive indicators, the economic performance of the government has led to desire.
The GDP growth rate remained terribly low at 2.7% in the first ten months of the current financial year, not enough to improve the living conditions of people, relieve poverty or provide employment to the new participants in the labor market.
National health expenses remained terribly low at 0.9% of GDP in 2023-24 and should remain at the same low level during the current financial year.
Even more disappointing was the low national education expenditure which was estimated only 0.8% of GDP in the first ten months of 2024-25 against UNESCO recommendation that these expenses should represent at least 4.0% of GDP.
The low level of education expenditure shows that most of our young people, when they enter the labor market, would be illiterate or semi-alphabetized in the face of the challenges of the modern world based on knowledge, where the progress of science and technology is an essential condition for progress.
The budget of 2025-26 with an objective of growth of modest GDP of 4.2% against 2.7% during the outgoing financial year reflects the continuous focus of the government on budgetary discipline and economic stability in relation to the need for a high growth rate of the economy which is an essential prerequisite for poverty reduction and the lowering of unemployment.
The government therefore remains far from the ideal combination of a high growth rate of GDP greater than 6 to 7% per year and a stable economic environment marked by a balanced budget, a current account surplus and a low inflation rate. This is mainly due to the fact that the government has failed so far to cause the structural reforms necessary to achieve these objectives.
With regard to the question of budgetary balance, the fundamental problem is the low level of tax ratio / GDP in Pakistan, which does not provide enough resources to the government to meet its essential current and developmental requirements. During the outgoing financial year, the tax ratio / GDP should be approximately 8.0% despite the government’s high claims on the reforms it has introduced to rationalize and improve the tax system.
Depending on the past performance of the FBR, it is unlikely that the tax ratio / GDP in 2025-2026 exceeds 10%. It should be recalled that the average tax ratio / GDP in developing countries is estimated at around 15% and ideally, it should be more than 20% in our case.
Our unsatisfactory performance in tax collection is the main reason for our levels of eternally high budget deficits and our inability to finance major development projects through the government’s resources instead of counting on national and external loans. The first leads to national loans to the private sector, and the second increases the burden of external debt.
The only way to reverse this unhappy situation is to expand the tax base to adequately cover the income earned in the agricultural sector, real estate and retail, in addition to considerably reducing the tax exemptions granted to various elite classes in the country. This should be combined with a austerity motivation to reduce current government expenses. The 2025-26 budget unfortunately does not go far enough in this direction.
Our national savings rate, which was estimated at around 14%of GDP in 2024-25, is much lower than comparable national savings rates (around 30%) and Bangladesh (around 34%). A high national savings rate allows a country to finance a high national rate of national investment thanks to internal resources, thus reaching a high growth rate of GDP without counting on foreign loans or investments.
Our low national investment rate, estimated at around 13.8%, explains the low rate of GDP growth during the outgoing financial year. Morality is that if we want to accelerate our GDP growth rate to a level greater than 6.0%, we will have to increase our national investment rate to more than 25% of GDP, assuming a capital-supply ratio from 4 to 1.
In addition, if we do not want to count excessively on foreign loans to finance this high level of investment, we must also increase our national savings rate to 25% of GDP or even more. The main culprit preventing us from reaching the high level desired of national savings is the dependence of the Pakistani leading elite to a remarkable life.
The budget does not contain any interesting initiative to move the country in the desired direction by considerably increasing our national savings rate.
The federal budget in its current form is a quintessence of mediocrity and manifests all the evils of elite capture. He betrays the lamentable ignorance of the main engines of economic progress in the modern world based on knowledge. It continues the looting and looting of the country’s elite of the country’s resources thanks to continuous visible consumption, unlikely tax exemptions and other privileges.
It brings little relief to the poor and oppressed thanks to a rapid increase in the growth rate of GDP, poverty reduction and improvement of employment possibilities.
Not taking the necessary economic initiatives to increase the rate of GDP growth quickly and sustainably and accelerate the country’s scientific and technological progress also compromises long -term security in Pakistan.
The writer is a retired ambassador and author of “Pakistan and a World in Disorder – a great strategy for the twenty -four”. It can be reached: [email protected]
Warning: The points of view expressed in this play are the own writers and do not necessarily reflect the editorial policy of PK Press Club.tv
Originally published in the news
