Pakistan lays out budget but may not satisfy IMF
The plain-vanilla budget is unlikely to satisfy the IMF, which could lead the South Asian nation to default on its debts.
The Pakistani government is aiming for a budget deficit of 6.54 percent of economic output in the fiscal year beginning July 1, the finance minister said on Friday, slightly below this year’s revised estimate of 7 percent.
Finance Minister Ishaq Dar announced the target during his budget speech before the national legislature.
The deficit target for the fiscal year ending this month was revised upward from an earlier forecast of 4.9 percent.
The budget should satisfy the IMF to release the tied-up bailout money for the crisis-hit country, which is set to hold general elections by November.
The government had prepared “a responsible budget, not an election budget,” Dar said.
The total spending target would be 14.46 trillion rupees ($50.45 billion), Dar said, with 1.8 trillion rupees ($6.2 billion) for defence. It would target debt service of 7.3 trillion rupees ($25.4 billion).
Dar reiterated that the government hoped to reach an agreement with the IMF soon, echoing Prime Minister Shehbaz Sharif’s remarks earlier in the day when addressing his cabinet.
Sharif’s government hopes to persuade the IMF to release at least part of the remaining $2.5 billion from a $6.5 billion program Pakistan introduced in 2019, which expires at the end of this month.
Potential for default
Some analysts said the budget was unlikely to impress the IMF.
“It’s a simple budget with no road to structural reform,” said Shahbaz Ashraf, chief investment officer at Karachi-based investment firm FRIM Ventures.
On Thursday, the IMF said it discussed the budget with Pakistan, focusing on balancing debt sustainability and creating room to increase social spending.
Mustafa Pasha, chief investment officer at Lakson Investments, said the IMF would likely call for more measures around revenue collection.
“The budget is unlikely to improve the chances of a staff-level agreement [with the IMF] in June,” he said.
The budget would target a total tax revenue of 9.2 trillion rupees ($32 billion), said Dar, adding that there would be no new tax on the industrial sector.
It would target net external financing of 2.5 trillion rupees ($8.7 billion) for the fiscal year ending June 2024, of which 1.6 trillion rupees ($5.5 billion) will come from commercial loans and euro bonds.
None of this would satisfy the IMF, however, warned former World Bank adviser Abid Hassan, who said there was “less than a 50 percent chance” of this happening.
“Default is not imminent,” Hassan told Al Jazeera from Islamabad, “but within 3-4 months, unless there is a new IMF program that will bring in money from the private sector, which [in turn] will also encourage [other lenders] to maybe give extra support to Pakistan unless that comes through, the default is 100 percent in six months.