ISLAMABAD In order to bolster its case for a fresh bailout agreement with the International Monetary Fund (IMF), Pakistan’s coalition government is anticipated to set out aggressive budgetary objectives in the 2024/2025 (July–June) budget on Wednesday, according to officials and experts.
In order to prevent a default on a loan that is expected to be worth between $6 billion and $8 billion, Pakistan is in discussions with the IMF for the purpose of supporting its economy, which is developing at the slowest rate in the area.
According to Ali Hasanain, chairman of the economics department at Lahore University of Management Sciences, “the budget holds critical significance for Pakistan’s IMF programme and must close the gap between our revenue collection and total expenditure; it is thus likely to be contractionary.”
Pakistan just avoided defaulting last summer because of a $3 billion, nine-month IMF bailout.
Its external and fiscal deficits have been reduced, but at the cost of severe declines in industrial and economic activities and high inflation, which averaged over 30% in the previous fiscal year and 24.52% in the previous 11 months.
In contrast to the 2% growth objective for this year and the economic decline for last year, a 3.6% growth target is anticipated for the future year.
Since winning the February elections, Prime Minister Shehbaz Sharif has made a public promise to implementing strict reforms; yet, political pressure has mounted on his coalition due to rising costs, unemployment, and a dearth of new job prospects.
It will be difficult for the government to completely execute all of the steps that the IMF is probably recommending, such as raising income by expanding the tax base and raising electricity tariffs, Standard Chartered noted in a report on the budget last month.
Standard Chartered stated in the letter that “deeply ingrained structural reforms were seen as a difficult task to implement, a vocal and popular opposition, and a weak coalition government were seen as reasons for caution.”
“The risk that front-loading tough fiscal measures could face a backlash from the public was a key concern among local stakeholders,” the statement continued.
It will be difficult for the government to completely execute all of the steps that the IMF is probably recommending, such as raising income by expanding the tax base and raising electricity tariffs, Standard Chartered noted in a report on the budget last month.
It will also be the first test for recently appointed Finance Minister Muhammad Aurangzeb, who was previously the head of HBL, the biggest bank in Pakistan. Sharif brought Aurangzeb in to provide new policy ideas to deal with enduring issues in the $350 billion economy.
Prior finance ministers have avoided difficult decisions like slashing government expenditure, lowering subsidies, and raising taxes on politically touchy industries like retail, real estate, and agriculture.
Chief investment officer of Lakson Investments Mustafa Pasha stated he thinks it would be challenging to take such action.
He noted that failing to satisfy IMF demands will likely result in a delay in a new plan that Pakistan cannot afford for long. “Any attempt to tax agriculture, retail, and real estate will likely be poorly structured and face legal challenges which will prevent any collection,” he said.
Today is the start of the NA budget session.
Targets for the revenues from privatisation will be another important item in the budget to keep an eye on. Selling a portion of its national airline, Pakistan is attempting to make its first significant sale in almost 20 years.
It is anticipated to be the first of several sales of businesses that are losing money, especially in the unstable electricity industry.
