Islamabad, Pakistan – The government of Pakistan is set to announce its annual budget on Wednesday. The challenge lies in balancing the needs of its 240 million residents while adhering to fiscal responsibilities demanded by the International Monetary Fund (IMF), a vital lender.

With plans to boost its GDP growth rate from 2.38% in the current fiscal year to over 3.5%, Pakistan aims to rejuvenate an economy that has been languishing due to nearly two years of political instability.

Pakistani officials have embarked on numerous discussions with the IMF. Prime Minister Shehbaz Sharif, who assumed office at the head of a coalition following the February elections, has been proactive in these negotiations.

Sharif's recent travels to Saudi Arabia, the United Arab Emirates, and China—nations pivotal to Pakistan’s economic stability—highlight his efforts to bolster foreign investments.

So, is Pakistan's economy on a comeback path? Are the measures taken by the government influencing the common man? What should be the chief focus in the forthcoming budget according to analysts?

Is Pakistan’s economy truly showing signs of revival?

The latest data from Pakistan's central bank and global organizations like the IMF provide a cautiously positive outlook.

According to the Pakistan Bureau of Statistics, the nation's inflation, which had surged to 38% in May 2023, has fallen to 11.8%. For instance, the price of a kilogram of wheat has decreased from over 130 rupees ($0.47) last May to 102 rupees ($0.37) now.

Fuel costs have also diminished, from 288 rupees ($1.03) per liter in May 2023 to 268 rupees ($0.96) per liter at present.

The central bank's foreign exchange reserves, which had fallen to $2.9 billion in February 2023, sufficient for only three weeks of imports, have now risen to over $9 billion, the average figure for the past six years.

Similarly, the Pakistani rupee has stabilized at 280 rupees per US dollar after losing more than 60% of its value over the past two years.

The stock market has also demonstrated a positive trend, hitting a peak of 75,000 points last month before easing.

The IMF, which recently concluded a nine-month Stand-By Agreement with Pakistan worth $3 billion, has acknowledged the country's macroeconomic improvements.

“Moderate growth has returned; external pressures have subsided; and while still high, inflation has started to decline,” the global lender noted last month.

Though economists acknowledge some stability, they advise caution, attributing the improvement to stringent policy measures like import restrictions. High electricity costs remain a concern.

“We see stabilization, but not significant growth, which suggests slow progress as the industry relies heavily on imports,” Safiya Aftab, an economist from Islamabad, told Al Jazeera. “There’s no increase in employment, and expenses are becoming unbearable.”

Ammar Habib Khan, an economist from Karachi, holds a more hopeful view on economic revival.

“The economy is in an adjustment phase. If reforms continue, there will be a trickle-down effect leading to reduced inflation, and businesses will start reinvesting and creating jobs,” he said to Al Jazeera.

Do improved economic indicators reflect gains for the public?

Sajid Amin Javed, a senior economist at the Sustainable Development Policy Institute in Islamabad, describes the economic stabilization as transient, achieved previously but never sustained. “It wanes as soon as the economy seeks higher growth,” he told Al Jazeera.

IMF-led stabilization in Pakistan historically involves costs borne by the public. Measures like import restrictions and increased energy prices have dampened economic activity.

Pre-budget reports indicate possible tax hikes and subsidy removals, such as on fertilizers, which may drive up prices.

“People are already struggling with high energy costs, rent, and goods prices. The forthcoming budget might prompt another inflationary wave, worsening life for the average individual,” Javed cautioned.

Hina Shaikh, an economist with the UK-based International Growth Centre, expresses doubts about ongoing stabilization, noting susceptibility to global oil price fluctuations.

“The exchange rate is still very sensitive to inflation,” remarked the Lahore-based economist. A declining currency could increase debt repayment costs for Pakistan.

Pakistan’s public debt continues to strain the treasury, with external debt and liabilities surpassing $130 billion this year, up by 27% from the previous year.

Data from the State Bank of Pakistan shows the country needs to repay nearly $29 billion in external debt over the coming year.

What should Pakistan do?

Experts stress the need to broaden the tax base rather than simply increasing taxes on those already in it, such as salaried individuals.

Pakistan’s tax-to-GDP ratio is only around 10%, among the world's lowest, exacerbated by under-taxation in sectors like agriculture, retail, and real estate.

Agriculture, contributing almost one-fifth of Pakistan’s GDP, accounts for less than 1% of the country’s tax revenue, a pattern mirrored in real estate.

A report by the International Growth Centre noted that Punjab, Pakistan's most populous province with over 100 million people, collects less urban property tax than Chennai, India, a city of roughly 10 million.

“The tax base needs expansion, with relief for the formal sector to incentivize reinvestment,” said Khan. “Deepening the tax burden will not help, as the formal sector is already overburdened and lacks incentives to reinvest in the economy.”

Javed of SDPI recommends a budget that supports economic activity instead of focusing solely on revenue targets by taxing those already within the tax net. Some reports have suggested potential taxes on solar panels and other clean energy infrastructure, though the government has denied such plans.

“Imposing taxes on solar panels and other green energy solutions for revenue targets will harm the economy in the medium to long run,” he emphasized.