he people were on edge well before the federal budget announcement, largely due to the government’s consistent proclamations about securing an International Monetary Fund loan programme and meeting its stringent reform conditions. The Pakistan Peoples Party, a key ally of the government, had been promising relief, but the promises were overshadowed by the focus on IMF requirements. Hyperinflation under the PDM government and the replacement of Ishaq Dar as the chief financial manager had added to the anxiety. But nobody might have anticipated that the budget will be all about high taxes and costlier utilities.

In the federal budget for 2024-2025, a major share of revenue is projected to come from taxes. The Federal Board of Revenue has been tasked with collecting Rs 12,970 billion in tax revenue, up from Rs 9,252 billion in the previous year. This represents an increase of approximately 40.2 percent. Tax revenue is expected to account for around 68.7 percent of the total income.

As part of the government’s commitment to secure an IMF deal and achieve a primary surplus of 0.4 percent of GDP, significant hikes in utility bills have been approved. These will impact millions of consumers and disproportionally impact the poor. Fixed charges for electricity have been raised by 184 percent for industrial consumers, 150 percent for commercial consumers, and 100 percent for agricultural users. The basic electricity tariff has risen by Rs 5.72 per unit, setting the rate for domestic consumers at Rs 48.84 per unit. This is expected to come to Rs 65 per unit following ‘adjustments’ and other taxes. This hike has added an additional burden of approximately Rs 600 billion on consumers. The national average has risen from Rs 29 to Rs 35.50 per unit. The poorest households face a hike of Rs 3.95 per unit, with new fixed monthly charges adding further financial strain. Exorbitant electricity bills are driving some people to desperate measures, including storming power stations to protest long load shedding hours. Additionally, calls are growing to cancel contracts with independent power producers due to their costly dollar-denominated payments. These developments signal a severe crisis, heightening public frustration and economic instability.

The government justifies these taxes and utility bill hikes as necessary to secure an IMF programme and address decades of financial mismanagement. However, high taxes and utility bills may not solve Pakistan’s fundamental economic problems. Pakistan faces the challenge of high debt and substantial interest payments. Gross public debt stands at Rs 67,524.8 billion, or 74.8 percent of GDP. For the fiscal year 2024-25, 52 percent of government expenditure, amounting to Rs 9,775 billion, is allocated for interest payments alone. This severely limits fiscal space for economic recovery and development, making it difficult to invest in productive sectors and address unemployment. The persistent rise in public debt, increasing from Rs 59,248.5 billion in March 2023 to Rs 67,524.8 billion in March 2024, suggests that this trend will continue and further exacerbate the economic challenges.

The government has apparently pinned its hopes on the sale of some state enterprises. It has made the privatisation of Pakistan International Airlines a test case. The anticipated starting price for the sale of PIA is $300 million (approximately Rs 84 billion). However, the federal budget projects only Rs 30 billion from privatisation proceeds. The amount is negligible compared to the Rs 9,775 billion needed for debt repayment this year. The crux of the matter is that privatisation can bring about only some temporary relief and will not significantly impact Pakistan’s long-term fiscal position. High taxes and utility bills will not solve Pakistan’s fundamental economic problems either because the revenue generated will be offset by high debt and interest payments.

To address Pakistan’s debt crisis, the government must implement deep structural reforms focused on controlling expenditure and broadening the tax base to include all undertaxed and untaxed sectors. It is crucial to solve persistent energy sector issues, which contribute significantly to fiscal deficits. Privatising state-owned enterprises and withdrawing subsidies can provide temporary relief. Reducing reliance on short-term, expensive domestic loans in favour of long-term, low-cost external debt is essential. Finally, cutting wasteful government spending and encouraging private investment will help create a more stable economic environment and reduce the human cost of debt repayment.

The drive to raise taxes and collect those through utility bills, coupled with governance issues in the FBR and weak enforcement against influential power thieves, may temporarily secure an IMF deal. However, sustainable solutions lie in boosting productivity, improving export performance and attracting foreign investment. A comparison with India and Bangladesh reveals differing economic trajectories and policy outcomes of these nations. Unlike Pakistan, India and Bangladesh have effectively enhanced productivity through strategic economic planning and robust institutional frameworks. India excels in IT, pharmaceuticals and manufacturing, driven by extensive investment in infrastructure. The IT sector alone contributes $194 billion to India’s economy, making it a global leader in software services and technology exports. In stark contrast, Pakistan’s IT industry remains underdeveloped, contributing only about $3.5 billion, highlighting the need for significant investment and development.

Fundamental differences in institutional structures have positioned India and Bangladesh ahead of Pakistan. India is benefiting from a strong business environment and diverse industrial base. Bangladesh has achieved remarkable growth through the empowerment of women and improvements in healthcare and education. Bangladesh’s textile and garment industry, supported by social investments, has driven its consistent GDP growth. In contrast, Pakistan’s heavy reliance on a less competitive textile sector, high public debt and weak social indicators have hindered its economic progress. To achieve sustainable growth, Pakistan must focus on diversifying its economy, investing in social sectors and strengthening institutional frameworks to boost productivity.

The budget offers little assurance that the government is committed to raising the productive capacity of the economy through sustained effort and long-term vision. No economic turnaround is possible without political stability. In Pakistan, the situation is particularly volatile, with the transparency of previous elections disputed and strong grassroots support for the opposition leadership. The government might be betting that the incarcerated PTI leader will remain behind bars long enough for difficult economic decisions to bring about some relief and reclamation of political capital. This is a high-stakes gamble with a significant risk. The economic situation could worsen and public patience with high utility bills could run out, potentially leading to another political crisis.

The solution lies in balancing IMF prescriptions with providing relief to the people. Nobody will believe the government’s argument that difficult decisions are necessary when they see long cavalcades on the roads, elaborate security details and massive increases in the perks and privileges of the elite.

The writer is a tenured associate professor and head of the Department of Economics at COMSATS University Islamabad, Lahore Campus