Following the Money: Insights into Pakistan's Budget 2024-25
A look at Pakistan's current fiscal year 2024-25 budget helps gain insights into how the country is run. It shows the money flows from the key sources of revenue and the nation's spending priorities. Total planned federal spending for the current fiscal year is Rs.18,900 billion (about 69 billion U.S. dollars). This figure does not include the transfer of Rs. 7,438 (US$ 26 billion) from the federal government to the provinces. Under the 18th amendment passed in 2010, the federal government is obligated to share 57.5% of its revenue with the provinces. The federal government is primarily responsible for defense, foreign affairs, debt servicing, foreign trade, ports and shipping, and development programs, while food and agriculture, education, healthcare and housing are devolved to the provinces. There still appears to be some overlap of domestic responsibilities between the federation and the provinces.
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| Pakistan's Budget 2024-25 at a Glance. Visualization Courtesy of Prof Adil Najam |
The federal government's total revenue is expected to be Rs. 17, 815 billion (US$ 65 billion). In addition, Islamabad plans to borrow Rs. 8,470 billion ($31 billion) during the fiscal year. Interest payments of Rs. 9,775 billion ($ 36 billion) will account for more than half of the federal budget this year. Debt servicing costs will also exceed the planned borrowing (of Rs. 8,470 billion) for the year. In other words, all of what the government plans to borrow this fiscal year will be used to service the current debt on the books.
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| Detailed Budget Visualization By Dr. Adil Najam via Dawn |
Federal debt servicing costs (Rs. 9,775 billion or $35 billion, 9.3% of current GDP) have spiked in recent years due to the State Bank's tight monetary policy designed to fight persistent double digit inflation. In fact, interest payments on debt are by far the biggest single federal expenditure line item, far surpassing the Rs. 2, 122 billion ($7.7 billion or 2% of current GDP) defense spending. Higher interest rates have also dramatically slowed down the economy.
Pakistani provinces raise some of their own revenue on top of the transfers from the federal government. For example, Punjab, the largest of the four provinces, plans to spend an estimated Rs. 4,643.4 billion ($17 billion); including the federal transfer of Rs. 3,683.1 billion and about Rs. 960 billion ($3.5 billion) of provincial tax revenue.
Sind, the second largest province, has a Rs. 3,056 ($11 billion) budget that includes Rs. 1,854 billion from the federal government, and Rs. 1,202 billion ($4.35 billion) from its revenue sources. KP, the third largest province, has a Rs1,754 billion ($6.4 billion) budget, including Rs. 1,222 billion from the federal government and Rs. 532 billion ($1.9 billion) provincial revenue. Balochistan's budget is Rs. 956 billion ($3.5 billion) that includes Rs. 667 billion from the federal government and Rs. 290 billion ($1 billion) from its resources.
Altogether, the federal and provincial governments expect to raise about $75 billion in revenue, representing 20% of $375 billion GDP for fiscal year 2023-24. This is not bad for a developing country like Pakistan. The defense allocation of Rs. 2,122, the second largest federal expenditure, is a mere 2% of the current GDP. The biggest expenditure this year will be the interest payments of Rs. 9,775, accounting for over 50% of the federal budget and 9.3% of the current GDP. These debt servicing costs will hopefully come down as the State Bank cuts its interest rates this year and next. Lower interest payments in future years should free up money for other more pressing needs in the areas of education, healthcare, energy and infrastructure.
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https://english.aaj.tv/news/330365159/budget-2024-25-production-of-solar-panels-inverters-and-batteries-becomes-cheaper
According to the finance bill, the government has eliminated all taxes on machinery and equipment used in the manufacturing of lithium-ion batteries, most of these were subjected to taxes ranging from 5% to 20%.
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Pakistan’s energy system strained by surge in solarization, battery tech
https://www.thenews.com.pk/print/1215486-pakistan-s-energy-system-strained-by-surge-in-solarization-battery-tech
ISLAMABAD: The rapid solarization and advancements in battery technology are increasingly challenging Pakistan’s existing energy system.
The influx of over 7,000 megawatts of imported capacity, coupled with some industrialists and bulk consumers installing in-house plants of up to 1.5 megawatts, threatens to disrupt long-term agreements with Independent Power Producers (IPPs).
This situation is exacerbated by mounting frustration among power consumers, who are being burdened with substantial multi-billion-rupee capacity charges on their monthly bills.
The provincial governments, especially Punjab and Sindh’s distribution of solar panels to the public, will further pressurise the system, as they will now be drawing less from the grid and so the burden of capacity charges will increase and ultimately the tariff, which will further take away consumers from the grid power.
“Various bulk consumers have done aggressive solarization, even they installed capacity of up to 1.5 megawatts and have kept the grid at backup,” Chairman Nepra Waseem Mukhtar said while presiding over a public hearing on Wednesday adding, “It’s [solarization] a threat.”
The Nepra chairman said that this 7,000 MW imported solar capacity is not for only rooftops, bulk consumers are also installing their big capacities. He also tasked the CPPA with conducting a study on solar energy usage, mapping and submitting a report to Nepra.
Central Power Purchasing Agency (CPPA) while pleading the case on behalf of Discos reported that electricity consumption in June 2024 was 10 percent lower than the reference period consumption, while two percent less than last year.
Waseem Mukhtar said that the government has launched a study to determine if Pakistan requires additional power generation capacity. He emphasized the need for a logical approach to adding more electricity to the national grid. The study is also evaluating that Commercial Operating Dates (CoDs) for some plants may be postponed, he said, mentioning that the study will determine which plants can be retired early.
https://www.reuters.com/markets/asia/pakistan-annual-inflation-slows-96-first-single-digit-stat-nearly-3-years-2024-09-02/
Karachi, Sept 2 (Reuters) - Pakistan's annual consumer price inflation rate slowed to 9.6% in August, the first single-digit reading in almost three years, the statistics agency said on Monday.
Pakistan struck a deal last month with the International Monetary Fund for a $7 billion loan programme that includes tough measures such as higher taxes on farm incomes and electricity prices.
The prospect of such moves has worried poor and middle class Pakistanis. But inflation has started moving on a downward trend, albeit from a high base.
Monday's inflation figure was in line with finance ministry projections released on Friday of a range of 9.5-10.5% in August. It forecast further falls in September.
Pakistan's August annual CPI figures were down from 27.4% this time last year and 11.1% in July. The monthly inflation rate was 0.4%, the Pakistan Bureau of Statistics said in a statement.
"Inflation is falling because the currency has remained stable over the past 12 months," Adnan Sami Sheikh, assistant vice president of research at Pak-Kuwait Investment company, said.
He added that the rupee had risen 9%-10% against the dollar over last year, bolstered by Pakistan's moves to restrict demand for the greenback through import controls, high interest rates and other measures.
Pakistan's central bank has cut rates for two straight meetings from a historic high of 22% to 19.5%. It will meet again to review monetary policy on Sept. 12.
The latest interest rate cut would "keep inflationary expectations well-anchored and will support the sustainable economic recovery in FY2025," the ministry's monthly report said.
In an interview with Reuters this week, central bank chief Jameel Ahmed said recent interest rate cuts in Pakistan have had the desired effect, with inflation continuing to slow and the current account remaining under control, despite the cuts.
"Even though interest rates are expected to come down over the medium term, it is unlikely that demand would return to earlier levels," Sheikh said, citing rises in electricity and fuel prices.
"This puts the government back in the Catch 22 situation, whereby stimulating growth also stimulates balance of payment crisis," he added.