Pakistan lays out budget but may not satisfy IMF

Pakistan’s government will target a budget deficit of 6.54 percent of economic output in the fiscal year starting on July 1, the finance minister said on Friday, slightly below the current year’s revised estimate of 7 percent.

Finance Minister Ishaq Dar announced the target during his budget speech to the national legislature.

The deficit target for the fiscal year ending this month had been revised higher, from a previous projection of 4.9 percent.

The budget needs to satisfy the IMF to secure the release of stuck bailout money for the crisis-struck country, which is due to hold a general election 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 ($50.45bn), Dar said, with 1.8 trillion rupees ($6.2bn) going to defence. It would target debt servicing of 7.3 trillion rupees ($25.4bn).

Dar reiterated that the government hoped to get an agreement with the IMF soon, echoing comments made earlier in the day by Prime Minister Shehbaz Sharif as he addressed his cabinet.

Sharif’s government is hoping to persuade the IMF to unlock at least some of the $2.5bn left in a $6.5bn programme that Pakistan entered in 2019 and which expires at the end of this month.

Potential for default

Some analysts said the budget was unlikely to impress the IMF.

“It is a plain vanilla budget with no path to structural reforms,” said Shahbaz Ashraf, chief investment officer at Karachi-based investment firm FRIM Ventures.

On Thursday, the IMF said it has been discussing the budget with Pakistan with a focus on balancing debt sustainability while creating space to increase social spending.

Mustafa Pasha, chief investment officer at Lakson Investments, said the IMF would likely ask for more measures around revenue collection.

“The budget is unlikely to improve chances of a staff-level agreement [with the IMF] in June,” he said.

The budget would target total tax revenue of 9.2 trillion rupees ($32bn), said Dar, who added there would be no new tax on the industrial sector.

It would target net external financing of 2.5 trillion rupees ($8.7bn) for the fiscal year ending in June 2024 of which 1.6 trillion rupees ($5.5bn) would come via commercial and Eurobond borrowing.

However, none of this would satisfy the IMF, warned Abid Hassan, former world bank adviser who said there was “less than a 50 percent chance” of that happening.

“Default is not imminent,” Hassan told Al Jazeera from Islamabad “but in 3-4 months, unless there is a new IMF programme which will bring in private sector money, which [in turn] will also encourage [other lenders] to maybe give additional support to Pakistan, unless that comes through, the default is 100 percent in six months from now.”