Pakistan's 2024 budget feeds the debt and squeezes those who already pay

A government that spends more than it raises

Muzamil sets out to answer one question about the 2024 budget. Is it against the people, or is it a sound budget that got caught up in politics? To answer it, he starts with the government’s basic problem: it spends too much and does not raise enough revenue.

He knows how that sounds to people already taxed on phone cards, electricity bills, salaries and sales. He is clear that those who pay are paying plenty. His point is that a very large part of Pakistan pays nothing.

Some of that group is what he calls a parasitic rent-seeking class: power producers, bankers, the sugar lobby and real estate barons. He promises separate episodes on them. Many others avoid tax too. A small shop may look poor, he says, but it may be making 10 to 15 lakh rupees in profit while the salaried customer earning one lakh feels like the rich one. Doctors and lawyers often ask for cash. A doctor charging 3,000 rupees a visit may make 20 to 25 lakh a month in cash and pay no income tax, while anyone formally earning above 50,000 does.

He adds the size of government itself: dozens of ministries, thousands of staff, and a clerical layer from grade 1 to grade 16 that he says makes up 97 percent of government employees. In his telling, elected members often place people from their home areas in these jobs. The result is a state that borrows every year to run ministries, to pay power plants, and to pay interest.

Seventeen trillion in, nothing left over

The budget sets a target of 17 trillion rupees in tax and non-tax revenue. Muzamil doubts it can be met. People do not have the money, he says, and many will look for loopholes to survive, which he does not blame them for.

Even if it is met, the numbers do not work. About 7 trillion goes to the provinces under the NFC award. The remaining 10 trillion goes to interest payments. That means the federal government, its defence budget, its health and education spending, and every ministry will run for the next year on new borrowing. “They are not working on your tax money,” he says. “They are working on borrowed money.”

What Murtaza Syed’s numbers show

Muzamil leans on a data thread by Murtaza Syed, whom he introduces as an economist and former acting governor of the State Bank until 2022. He relays these figures from it:

• Pakistan pays about 6 percent of its GDP in interest, the highest among developing nations.
• About 65 percent of government revenue, roughly two-thirds, goes to interest. Five years ago it was around 40 percent. It rose to 50, dipped, and is now at 65.
• Pakistan spends three times more on interest than on education. Only Sri Lanka is worse.
• It spends six times more on interest than on health. Only Egypt, Angola and Yemen are worse.
• It spends twice as much on interest as on development. Only Lebanon and Angola are worse.

Muzamil’s reading is blunt. The countries near Pakistan on these lists are ones whose economies have already crashed. “Either we are artificially pumped up, or we are heading that way with curtains over our eyes.”

He explains why this compounds. A country that borrows to pay interest keeps the old debt, adds new debt and pays more interest each year. Pakistan cannot do what America does, he says, carrying very high debt and printing money indefinitely. At some point it defaults, imports stop and fuel runs out. To avoid that, the state needs reforms on time: cut what it cannot afford, and sit down with banks to reprofile debt that has become unsustainable, even if that means losses for lenders.

A budget that raised spending

The expectation was that the government would control spending and raise revenue, as the IMF had urged for six months. Muzamil says he saw no sign of spending cuts.

Instead, he lists what went up. Government employees got 20 to 25 percent raises with no cut in headcount to make room. National Assembly staff got three months of bonus salary. Benefits and pay for MNAs and senators rose. Defence rose by 17 percent. He accepts there may be security arguments, but says the numbers do not support a rise now. The development program, PSDP, rose by 40 percent, in a year he says should have been about belt tightening and a simple message that there is no money for new projects.

“Who is going to pay for this?” he asks. In the end, he says, it comes out of Pakistanis’ pockets.

Squeezing the people who already pay

On revenue, Muzamil agrees Pakistan collects too little. His criticism is about who the budget chose to tax. Reaching the untaxed takes structural change and effort, he says, so the budget loaded more onto those already paying: salaried workers and tax-compliant businesses.

He walks through the effects as he sees them:

• Milk. An 18 percent sales tax on packaged milk took the price, he believes, from about 270 to 370 rupees overnight. “I am getting milk cheaper in Dubai than in Pakistan.”
• Electricity. His own bill works out to 66 rupees a unit in Pakistan. In Dubai he pays about 28 a unit, all charges included, and he cites about 24 in India and Bangladesh. “How will your industry compete at 66 rupees?”
• Brackets. The minimum wage rose from 16,000 rupees in 2018 to 37,000 today, yet the tax bracket still starts at 50,000. Someone earning one lakh in 2018 now needs about 1.75 lakh to buy the same goods, and pays more tax for it.
• Exports. Exporters who relied on cheap labour lose their edge when workers become more expensive. “Power was already expensive. You have made manpower expensive too.”

Meanwhile, he says, agriculture income stays largely untaxed, including income that large landowners route through it. Real estate holders who already pumped the market face no serious new tax, and retail got a free pass again. He cites last year’s World Bank report, which he calls detailed, estimating that seriously taxing retail, agriculture and real estate could raise about 3 trillion rupees.

Power contracts and a banking system lending to the state

Muzamil saves his sharpest criticism for two sectors. On electricity, he says capacity payments to power producers will cross about 2 trillion rupees this year. He describes how, in his understanding, many independent power producer deals work: the investor puts in about 20 percent, the rest is debt repaid through consumers’ bills over about 10 years, and the government guarantees an 18 percent dollar-linked return on equity. He compares that with about 5.5 percent on US Treasuries, which he calls the world’s safest asset, and says Bangladesh also has independent power producers without capacity payments or debt deals like these.

He brings it home with bills from his own circle. His driver, whose home has no AC, got a 20,000 rupee electricity bill. His editor got one for 60,000. “It is unsustainable. It cannot work.”

He applies the same rent-seeking lens to sugar. Pakistan is short of water, he argues, and should import cheap sugar from rain-fed regions and grow less water-hungry crops. Price controls and licensed mills, in his view, keep a low-risk business alive at consumers’ expense.

On banks, he says they made about 960 billion rupees in profit last year, largely by lending to the government at 21 to 22 percent. He cites the Express Tribune reporting that banks will lend the government 24 trillion rupees this year to roll over existing loans, separate from the 10 trillion in interest. And about 94 percent of banks’ investments, he says, sit in government securities. Their job, in his view, is to put the nation’s savings into productive industry. If the government ever reprofiles its debt, depositors’ money is what sits on the line.

What he says should have happened

Muzamil gives his own version of a better budget:

• Give the salaried class relief. With a 37,000 minimum wage, the first bracket should start at perhaps 75,000 or one lakh rupees.
• Lower rates to pull people into the formal economy instead of pushing them toward cash.
• Use a free-floating rupee to build export competitiveness in services and export-oriented industry.
• Push digitalisation and reduce cash, so the state can see how much business actually happens. He points to TikTok videos of gold chains and very expensive cars as signs of a large informal economy.
• Lead by example. If the state wants belt tightening from the public, he says, its own officials have to go first.

A warning about hunger

Muzamil ends on a darker note. He says people in power often claim Pakistanis never rise up. His answer is that they did not because they were fed, with cheap local wheat. He predicts wheat will be dollar-priced next year, and warns that hungry people turn to violence. He cites Indonesia, which he says lived under hard authoritarian rule for 30 years until hunger in the 1998 crisis led to deadly violence.

Pakistan has 250 million people, he notes, and a crisis here would shake the whole region. He insists this is not about one party. In his view every party shares the same rent-seeking habits, and he is calling for systemic change. “This budget will be the last straw. That is my analysis of the situation.”

He says he is not an economist and is relaying what economists are saying. “I hope I am missing some variables,” he adds. He admits the budget left him deeply hopeless, and that he got more emotional than he planned. His closing advice to viewers is simple: “If you want to look at what’s happening in Pakistan, look at the debt crisis.”