Web Desk
The government is preparing to present its annual budget to Parliament today, with the aim of meeting the requirements set by the International Monetary Fund (IMF) in order to potentially secure additional bailout funds.
Risks of default on sovereign debt are increasing as the economy grapples with twin deficits and record-high inflation, which has negatively impacted the popularity of Prime Minister Shehbaz Sharif’s coalition.
The federal cabinet meeting to approve the budget is scheduled for 3 pm, followed by Finance Minister Ishaq Dar delivering his budget speech to Parliament after 4 pm.
Some budget figures were announced earlier in the week, including a development spending allocation of Rs1.15 trillion ($4 billion) and an economic growth target of 3.5 percent for the upcoming fiscal year.
Sources have informed Reuters that the preliminary budget proposals anticipate a fiscal deficit of 7.7 percent of GDP, with total spending projected at Rs14.5 trillion ($50.7 billion) and revenue collection at Rs9.2 trillion ($32.2 billion).
The proposals also set an inflation target of 21 percent, significantly lower than the record high of nearly 38 percent inflation recorded in May.
On Thursday, the IMF stated that it has been in discussions with the government regarding the budget.
The coalition government hopes to persuade the IMF to unlock at least a portion of the $2.5 billion remaining from a $6.5 billion program that Pakistan entered in 2019, which expires at the end of this month.
Esther Perez Ruiz, the IMF’s resident representative for Pakistan, stated on Thursday, “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.”
Pakistan missed nearly all of its economic targets set in the previous budget, most notably the growth target initially set at 5 percent, which was revised down to 2 percent earlier this year. Current projections indicate growth to be a mere 0.29 percent for the fiscal year ending on June 30.
According to data released by the State Bank of Pakistan (SBP) on Thursday, foreign exchange reserves have dipped below $4 billion, sufficient to cover barely a month of imports.
The government faces constraints in introducing popular measures to win votes or stimulate economic activity, as there is limited fiscal space and mounting domestic and international debt obligations.
Stakeholders anticipate a tough budget ahead. Pakistan Business Council (PBC) CEO Ehsan Malik highlighted the limited ability to reduce prices through reductions in duties and taxes on essential food items. He suggested increasing support through the Benazir Income Support Programme (BISP) to mitigate the impact of inflation on those who are most vulnerable.
Energy tariffs for domestic consumers are already subsidized by commercial and industrial users, making the industry less competitive. Mohammad Sohail, CEO of Topline Securities, predicted no major relief for consumers in the budget due to limited fiscal space.
Karachi Wholesalers Grocers Association (KWGA) Chairman Rauf Ibrahim expressed skepticism about the budget being consumer-friendly, as the government is under pressure from the IMF to raise taxes. He suggested implementing a rationing system for consumers and making solar power mandatory in new housing projects instead of providing substantial subsidies to utility stores.
The budget announcement will shed light on the government’s efforts to stabilize the economy, control inflation, and address the demands of the IMF while navigating limited fiscal resources.
