(Bloomberg) -- Pakistan’s government presented a budget for the next financial year that looks to balance boosting economic growth with the tough conditions imposed by the International Monetary Fund to revive a bailout program.
Finance Minister Ishaq Dar in his speech in the lower house of parliament Friday laid out a growth target of 3.5% for the fiscal year that starts July 1. The IMF predicted the same forecast for Pakistan in April. It’s an ambitious goal after currency depreciation, unprecedented summer floods and import curbs are estimated to slash GDP growth to 0.3% in the current year through June.
Prime Minister Shehbaz Sharif’s coalition government aims to trim the fiscal deficit to 6.5% next financial year, from 7% estimated for the current year, to secure the resumption of the IMF’s $6.7 billion program. The country aims to raise revenue collection by 28% to 9.2 trillion rupees to fund its record 1.15 trillion rupees public sector development program in the new year. Raising taxes will test his administration’s already frayed popularity ahead of a national election due no later than October.
“Pakistan will have a hard time convincing the IMF with such an ambitious budget,” Khurram Schehzad, chief executive officer of Alpha Beta Core Solutions Pvt Ltd., a financial consultancy, said from Karachi. The government will struggle to hit its tax revenue target, he said.
The government has shared its budget documents with the Washington-based lender to demonstrate its commitment to sticking to the program goals.
“IMF program is the government’s top most priority,” Dar said in Islamabad. “We are trying our best to sign the agreement as soon as possible and complete the ninth review this month.”
Pakistan is passing through the worst phase of its economic history, Dar said. Its currency has slid almost 30% against the dollar over the last year, its foreign exchange reserves now cover only about one month of imports and there’s at least a $2 billion gap in external funding out of a $6 billion target set out by the IMF.
The IMF’s program will resume once there is “proper market functioning” of the Pakistani rupee, the government follows the program goals in the budget and adequate financing, Esther Perez Ruiz, the IMF’s resident representative for Pakistan, had said in an email Monday. Pakistan’s loan program has been stalled for more than six months and expires in three weeks.
The nation expects that it will need to secure a new IMF program and budgeted receiving about $2.5 billion from the lender next year, according to documents. Pakistan has struggled to raise overseas loans after multiple downgrades by rating companies and an increasing risk of default.
On Thursday, hundreds of government employees demanding pay rises protested near Constitution Avenue in the capital Islamabad, where key government buildings including the parliament, Supreme Court and the Prime Minister’s office.
The ruling coalition proposes to raise an allowance in the salaries of the government employees by as much as 35% and raise pension by 17.5%, said Dar.
The economic hardships are complicated by a political crisis as former premier Imran Khan continues to clash with the country’s powerful military and the government. Sharif’s term in office ends in August and fresh polls must be called within 60 days of that.
With an eye to elections, the government is making some populist moves. It announced subsidized fertilizer and duty free import of seeds for agricultural growth. It also announced incentives for the technology sector, Dar said.
Pakistan raised expenses by about 30% to 14.5 trillion rupees with about half allocated to debt servicing. It plans to raise some of the revenue by adding a 10% tax on companies issuing bonus shares.
Typically, a budget in an election year would be front-loaded with popular measures, but the government will be “careful not to create any big mess with IMF,” said Abid Qaiyum Suleri, executive director at Sustainable Development Policy Institute, an Islamabad-based think tank.
--With assistance from Abhay Singh.
(Updates with budget details throughout.)
©2023 Bloomberg L.P.
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