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.
@ArifHabibLtd
Tax collection increased by 32% YoY to PKR 1,100bn during Sep’24
Tax collection for the month of Sep’24 increased by 32% YoY to PKR 1,100bn against a target of PKR 1,098bn. On MoM basis, tax collection increased by 38% in Sep’24
During 1QFY25, FBR collected revenue of PKR 2,556bn, up by 25% YoY. The collected amount is PKR 96bn short than the target of PKR 2,652bn.
https://x.com/ArifHabibLtd/status/1840975573146890642
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Remittances increased by 29% YoY to $ 2.8bn during Sep’24
Remittances by overseas Pakistanis increased by 29% YoY to USD 2.8bn during Sep'24 compared to USD 2.2bn during Sep’23. On MoM basis, remittances decreased by 3%.
In 3MFY25, remittances increased by 39%YoY to USD 8.8bn.
https://x.com/ArifHabibLtd/status/1843884748168478837
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https://tribune.com.pk/story/2501681/pakistan-sees-388-increase-in-remittances-from-overseas-workers
In the first quarter of fiscal year 2025, overseas Pakistanis sent a total of $8.8 billion back to Pakistan, marking a significant increase of 38.8% compared to the same period in fiscal year 2024.
Overseas Pakistanis sent an impressive $2.849 billion back to Pakistan in September 2024, reflecting a notable 29% increase from $2.208 billion in the Septermber 2023, Express News reported. Despite this positive trend, remittances saw a slight decline of 3% compared to August 2024, when the total was $2.943 billion
The average monthly remittances from workers over the three months amounted to approximately $2.92 billion.
Pakistani workers in Saudi Arabia were the largest contributors in September 2024, sending $681.3 million. Although this figure is a 4% decrease from August, it still represents a 27% increase from the $538.3 million sent in September of the previous year.
In contrast, remittances from the UAE showed an upward trend, rising by 4% from August, from $538.4 million to $560.3 million. Year-on-year, this figure jumped significantly by 40%, compared to $399.8 million in September 2023.
Pakistani workers in the United Kingdom sent $423.6 million in September 2024, which was an 11% decrease from August. However, this amount still signifies a 36% increase compared to last year.
https://www.reuters.com/business/energy/pakistans-biggest-private-utility-says-govt-power-deal-ends-prematurely-2024-10-10/
Government to save 411 billion rupees
Negotiations with more power producers underway
IMF bailout talks influenced decision to revisit power deals
KARACHI, Oct 10 (Reuters) - Pakistan's government has ended power purchase contracts with five private companies, including one with the country's largest utility that should have been in place until 2027, to cut costs, officials said on Thursday.
The news confirms comment from Power Minister Awais Leghari to Reuters last month that the government was re-negotiating deals with independent power producers to lower electricity tariffs as households and businesses struggle to manage soaring energy costs.
"We studied these agreements and we decided what plants we need and what plants we don't need," Leghari told a news conference in Islamabad on Thursday, adding the termination of the take or pay agreements will save the nation nearly 411 billion rupees ($1.48 billion) in the coming years.
Take or pay is referred to as capacity payments in Pakistan where the government has to pay private companies irrespective of how much of the power they generate is transferred to its grid.
Negotiations have also begun with other power producers to revise their contracts, Leghari said, adding people would soon see the impact in their monthly bills.
"Our aim is to bring the tariff down," he said.
The need to revisit the deals was an issue in talks for a critical staff-level pact in July with the International Monetary Fund (IMF) for a $7-billion bailout.
Earlier on Thursday Prime Minister Shehbaz Sharif said Pakistan has agreed with five independent power producers to revisit purchase contracts. He said that would save the country 60 billion rupees a year.
Pakistan's biggest private utility, Hub Power Company Ltd (HPWR.PSX), opens new tab, also said the company agreed to prematurely end a contract with the government to buy power from a southwestern generation project.
In a note to the Pakistan Stock Exchange, it said the government had agreed to meet its commitments up to Oct. 1, instead of an initial date of March 2027, in an action taken "in the greater national interest".
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As of Sep’24, Pakistan's Debt-to-GDP ratio has dropped to 65.7%, marking its lowest level since Jun’18. The Domestic Debt-to-GDP ratio is at 43.1%, while the External Debt-to-GDP ratio stands at 22.7%.
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https://x.com/ArifHabibLtd/status/1856013052644061281
https://www.brecorder.com/news/40330236
Pakistan’s trade deficit significantly decreased by 31% to $1.5 billion in October 2024 as compared to the same month of the previous year, data released by the Pakistan Bureau of Statistics (PBS) showed on Friday.
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Pakistan’s remittance inflow at $3.05bn in October 2024, up 24% year-on-year - Markets - Business Recorder
https://www.brecorder.com/news/40331410
On a month-on-month (MoM) basis, the inflow in October was 7% higher when compared to $2.86 billion in September 2024.
During 4MFY25, remittances went up by nearly 35% YoY to $11.8 billion as compared to $8.8 billion in 4MFY24.
Experts credit the increase in inflows to the stability of the exchange rate, a narrowing gap between open and inter-bank market rates, increase in digital payment channels and a rise in the number of workers relocating abroad, especially to GCC countries.
“These stronger inflows will help Pakistan maintain PKR stability and contain the current account deficit,” said Mohammed Sohail, CEO Topline Securities, in a note.
Home remittances play a significant role in supporting the country’s external account, stimulating Pakistan’s economic activity as well as supplementing the disposable incomes of remittance-dependent households.
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*Trade deficit decreased by 26% YoY to USD 1.6bn during Oct’24*
During Oct’24, exports stood at USD 3.0bn (+11% YoY | +5% MoM). Imports during the month remained at USD 4.6bn (-6% YoY | -1% MoM).
During 4MFY25, trade deficit also decreased by 4% YoY to USD 7.1bn.
https://x.com/ArifHabibLtd/status/1857441100337664363
@ArifHabibLtd
As of Sep’24, Pakistan's Debt-to-GDP ratio has dropped to 65.7%, marking its lowest level since Jun’18. The Domestic Debt-to-GDP ratio is at 43.1%, while the External Debt-to-GDP ratio stands at 22.7%.
https://x.com/ArifHabibLtd/status/1856013052644061281