By S.M. Inam
The Federal Board of Revenue (FBR) is confronting a steep revenue shortfall, with recent figures revealing a gap of PKR 189 billion between July and October, which could potentially grow to PKR 321 billion by December. This widening deficit poses a severe challenge to the government’s fiscal stability, placing additional pressure on an already stretched economic framework. While the FBR has labeled reports of the shortfall as speculative, the deficit highlights structural inefficiencies in the revenue collection system and signals the urgent need for economic intervention.
To counter this shortfall, the government is considering the controversial approach of introducing a mini-budget. This supplementary budget is expected to increase withholding tax rates on real estate transactions and various imports, targeting specific sectors that could generate immediate revenue. Although this plan has yet to receive cabinet approval, the FBR’s suggested steps appear aimed at satisfying the International Monetary Fund (IMF) as its delegation prepares to visit Pakistan in December for an economic review. However, resorting to a mini-budget, while potentially appeasing the IMF, raises concerns about the sustainability of Pakistan’s fiscal strategy.
One of the most contentious measures under consideration is a reduction in the development budget—a move that has been seen in previous budget cuts. Between July and September 2024, only PKR 22 billion was allocated from a massive PKR 1,100 billion development budget, reflecting a severe underutilization of funds intended for infrastructure, education, healthcare, and social welfare. Cutting further into this budget could undermine long-term development goals, particularly at a time when public infrastructure and social services are critical for economic resilience. Moreover, reducing development spending will exacerbate existing socioeconomic disparities, as funds that could enhance healthcare, education, and public transportation will be redirected toward debt servicing and balancing short-term deficits.
The ripple effects of these austerity measures will be felt most acutely by low- and middle-income households, who are already facing the weight of high inflation, stagnant wages, and a rising cost of living. Small businesses, a critical backbone of Pakistan’s economy, may struggle even more under increased taxes and economic contraction. For everyday taxpayers, the mini-budget is yet another sign of the government’s failure to meet revenue targets through more effective means. The lack of robust economic planning and execution in the initial budget raises questions about the FBR’s long-term strategy, especially when so many citizens are barely keeping up with inflation.
The government’s frequent turn to short-term fiscal fixes, such as mini-budgets, cannot serve as a viable substitute for fundamental reforms in the tax collection system. Pakistan’s tax base remains narrow, with significant reliance on indirect taxes that disproportionately impact the poor. Widespread tax evasion and limited coverage of the informal economy remain significant obstacles. Without structural reforms, the FBR is unlikely to overcome these persistent revenue shortfalls or achieve its potential as a revenue-generating institution. The reforms that Prime Minister Shehbaz Sharif has proposed within the FBR—such as digitalization, transparency initiatives, and capacity-building measures—offer a vision for a more robust, accountable, and equitable tax system. If properly implemented, these reforms could help to address revenue challenges more sustainably, fostering a tax system that can support long-term growth rather than relying on piecemeal fiscal adjustments.
The need for reform is particularly urgent, as reliance on IMF programs and short-term loans has only increased Pakistan’s fiscal vulnerability. Each successive IMF review places additional demands on Pakistan to balance its budget through further austerity, which stifles domestic demand and hinders economic expansion. The risks of continued reliance on such measures are clear: while they may temporarily avert financial crises, they do not address the root causes of the revenue deficit.
What Pakistan needs is a balanced approach that prioritizes sustainable growth and fiscal responsibility. The development of a transparent tax regime, coupled with targeted spending on social services and economic infrastructure, could foster a more resilient economy and instill greater public trust. Policymakers must also consider strengthening economic sectors with high revenue potential, such as agriculture, technology, and manufacturing, as these areas can contribute significantly to national revenue if given adequate support and investment.
As Pakistan’s economic challenges intensify, it is evident that a mini-budget, while potentially beneficial in the short term, is not a lasting solution. The situation calls for long-term strategies that can diversify the tax base, curb evasion, and promote equitable growth. Structural reforms within the FBR and a commitment to fiscal responsibility are essential steps to set the country on a stable economic path. By adopting a holistic approach to economic management, Pakistan can aim to achieve both fiscal stability and inclusive prosperity, moving beyond the cycle of deficit and austerity that has impeded its progress for decades.
(The writer is a senior analyst on national international affairs, can be reached at inam@metro-morning.com)
