Pakistan will present a budget amidst economic and political crises as the IMF watches 2023

With elections scheduled for November, Pakistan’s government must satisfy the IMF in order to have any hope of receiving more bailout funds. The government will propose its yearly budget to parliament on Friday.

The economy is sputtering under the weight of two deficits and record-high inflation, increasing the prospect of a sovereign debt default. This has further eroded support for Prime Minister Shehbaz Sharif’s coalition ahead of the election.

The most recent wave of political unrest may cause the economy to teeter on the brink of collapse because Imran Khan, the leading opposition figure, is engaged in a risky conflict with the nation’s strong military.

Finance Minister Ishaq Dar is scheduled to present his budget statement to parliament on Friday about 4:00 pm (1100 GMT) against the backdrop of this political turmoil.

Include a $4 billion development budget and 3.5% economic growth for the following fiscal year.

The early budget projections, according to sources who spoke to Reuters, were for a fiscal deficit of 7.7% of GDP, with total spending of 14.5 trillion Pakistani rupees ($50.7 billion) and tax collection of 9.2 trillion Pakistani rupees ($32.2 billion). The recommendations also established a target inflation rate of 21%, which is much lower than the record-breaking almost 38% inflation rate seen in May.

The International Monetary Fund said on Thursday that it has spoken with Pakistan about the budget.

The IMF has $2.5 billion left in a $6.5 billion program that Pakistan entered in 2019 and that ends at the end of this month. Sharif’s administration is attempting to convince the IMF to unlock at least some of that money.

According to Esther Perez Ruiz, the IMF’s resident representative for Pakistan, “the focus of discussions over the FY24 budget is to balance the need to strengthen debt sustainability prospects while creating space for increasing social spending.”

Nearly all of Pakistan’s economic goals from the previous budget were failed, most notably the growth goal, which was originally set at 5% but was reduced to 2% earlier this year. For the fiscal year that ends on June 30th, growth is now only expected to reach 0.29%.

According to information issued by the central bank on Thursday, foreign exchange reserves have fallen below $4 billion, just enough to fund a month’s worth of imports.

With few options for short-term revenue generation and rising domestic and foreign debt commitments, the government lacks the financial room to implement popular policies that would win it votes or a stimulus to jump-start sagging economic activity.

The difficulties facing opposition leader Khan, whose party has lost a number of important figures as a result of a military crackdown, may provide some solace to Sharif’s alliance.

Although Khan was deposed in a vote of no confidence in the house last year, surveys indicate he is still Pakistan’s most well-liked leader. He is now involved in a number of legal battles that might prevent him from running for office, including ones involving corruption and aiding and abetting murder.