Crisis-hit Pakistan Set to Present Budget as IMF Watches

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Pakistan hopes the budget will help unlock more than $2.5bn left in a $6.5bn IMF bailout programme expiring this month.

Islamabad, Pakistan – The Pakistani government is set to present its annual budget with one eye on precarious economic conditions and the other on national elections due by October.

Finance Minister Ishaq Dar will table the budget in parliament on Friday with spending of more than 14 trillion rupees ($50bn), targeted growth at 3.5 percent and a reduction in inflation to 21 percent from a record 38 percent, local media reports said.

Prime Minister Shehbaz Sharif’s government is also aiming to generate more than 9 trillion rupees ($32bn) of revenue through taxes, the reports said.

Pakistan hopes the budget this year will help unlock more than $2.5bn left in a $6.5bn International Monetary Fund (IMF) bailout programme, which expires at the end of this month.

The South Asian country of 230 million people urgently needs the IMF funds to avoid defaulting on its mounting debt and come out of a months-long economic meltdown.

Pakistan’s foreign exchange reserves have shrunk to less than $4bn, enough to cover less than a month’s imports, according to the latest figures issued by the central bank. In the past year, the Pakistani rupee has slumped against the US dollar by more than 50 percent.

On Thursday, the IMF said it had been discussing the budget with the Pakistani government, according to a report by the Reuters news agency.

“The focus of discussions over the FY24 budget is to balance the need to strengthen debt sustainability prospects while creating space to increase social spending,” said Esther Perez Ruiz, the IMF’s resident representative for Pakistan.

Hina Shaikh, economist at the London-based International Growth Centre, told Al Jazeera that without the IMF, it would be very difficult for Pakistan to survive the next financial year.

“The focus should be on fiscal discipline and managing inflation to ensure that we are able to revive the IMF programme, whether the existing one or a new one post-budget. The aim of this budget must be on averting a balance of payment crisis, ensuring a free-floating exchange rate and on bringing fuel prices at par with the world prices,” she said.

Pakistan, which must pay more than $20bn to foreign governments and lenders by next spring, and more than $77bn by June 2026, is fast running out of options.

Durre Nayab, economist at the Pakistan Institute of Development Economics, told Al Jazeera policymakers must work on reducing expenditures to stabilise the economy.

“Our policies to reduce the deficit are always about increasing taxes, which hampers growth and investment. This in turn leads to even more inflation. For me, cutting unnecessary expenditures is the key,” she told Al Jazeera.

Pakistan’s struggling economy was further strained by last year’s catastrophic floods, which killed more than 1,800 people and displaced millions. It also caused losses worth more than $30bn as crops, roads, bridges, rail networks and houses were washed away in the deluge.

This month, the World Bank in its global prospects report called Pakistan’s economic recovery in the next two years “anaemic”, projecting growth of 2 and 3 percent.

“In Pakistan, the lasting effects of the August 2022 floods, along with policy uncertainty and limited foreign exchange resources to pay for imports of food, energy, and intermediate inputs, have depressed activity, with industrial production contracting by about 25 percent in the year to March 2023,” the report said.

On top of it all, Pakistan is also facing political instability triggered by former Prime Minister Imran Khan’s removal from office in April last year.

Large-scale protests by Khan’s supporters over Khan’s recent arrest and the subsequent crackdown on his Pakistan Tehreek-e-Insaf (PTI) party, which Khan blames on the military, have added to the crisis in an election year.

Ali Hasnain, associate professor of economics at Lahore University of Management Sciences, said if the political crisis and the IMF negotiations were handled effectively, things would not have turned so dire.

“We need to take a close, hard look at undertaking structural reforms, which neither the PTI government did nor the current ruling alliance is doing,” he told Al Jazeera.

Shaikh said a populist budget with the general elections in mind could make things worse.

“An expansionary budget at this point will fuel more inflation and create more unemployment and would also imply that we may not be able to resume the stalled IMF programme, which could make it harder to negotiate a new one post the elections,” she said.

Source: Al Jazeera