Pakistan is heading towards a crucial phase as it prepares to unveil its budget on June 9, following an arduous bailout negotiation with the International Monetary Fund (IMF). A Fund official revealed that only one board review remains under the current IMF bailout package, which is seen as a step towards a successful review.
Esther Perez Ruiz, the resident representative for Pakistan at the IMF, emphasised the need to restore the proper functioning of the foreign exchange market to pave the way for the final review.
Ruiz outlined additional prerequisites, including passing a budget that aligns with the program objectives for the 2023-24 fiscal year, and securing credible financing commitments to address a $6 billion shortfall.
Experts suggest that the coalition government is striving to strike a delicate balance between satisfying the demands of the IMF and winning over voters in the upcoming general election. Analysts expect the government to announce populist measures in the budget to appease the electorate while aiming to meet IMF prescriptions.
The IMF program, which concludes this month, has approximately $2.5 billion in funds yet to be released due to ongoing negotiations between Pakistan and the lender. Pakistan’s economy is grappling with severe challenges, including high inflation, fiscal imbalances, and low reserves.
The government is hoping that the general election scheduled for November will help alleviate the turmoil stemming from a protest campaign led by Pakistan Tehreek-e-Insaf (PTI) chairman after his removal in a no-confidence vote last year.
Former finance minister Miftah Ismail stressed the importance of securing IMF funding, highlighting the difficulties Pakistan would face without it. Ismail expressed confidence that the government would present a budget in line with IMF prescriptions to ensure the country’s survival in the next fiscal year.
A staff-level agreement between Pakistan and the IMF to release $1.1 billion from a $6.5 billion package has been delayed since November, further intensifying the country’s need for funds to avert a balance of payments crisis. Experts believe that even after the current program expires, Pakistan will likely seek another bailout in the upcoming fiscal year to avoid defaulting on its debt obligations.
Pakistan’s central bank reserves can cover imports for only about a month, underscoring the urgency of securing financial assistance. Inflation in the country, home to 220 million people, has reached a staggering 37.97 per cent in May, marking a record high for the second consecutive month and making it the highest rate in South Asia.
The planning minister recently announced that development spending targets in the new fiscal year would be set at 1,150 billion rupees ($4.02 billion), while projecting an inflation rate of 21 per cent for the same period. With the general election looming, some analysts anticipate that the government will announce vote-winning measures, even if they have to be scaled back later.
Pakistan’s budget unveiling tomorrow will be closely watched by the nation, as it not only sets the course for the fiscal year but also represents a crucial step in the ongoing negotiations with the IMF and the government’s efforts to regain stability and boost economic growth.
