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Islamabad [Pakistan]June 13 (ANI): Pakistan late last week unveiled a PKR 14.5 trillion ($50 billion) budget, much of which will be financed through borrowing, amid rising sovereign default risks, Nikkei Asia reported. funds.
While Finance Minister Ishaqdar insisted the government had prepared a “responsible budget”, experts and even officials were skeptical, warning that it might not help the country secure vital IMF support.
The country remains mired in political and economic crisis, with inflation nearing 38% in May. On Monday, the central bank left its benchmark interest rate unchanged at a record 21%, saying it believed inflation had “peaked”.
But with only about a month’s worth of foreign exchange reserves, the nuclear-armed South Asian nation of more than 230 million people faces a difficult path and may be forced to rely on its biggest bilateral creditor, China, Nikkei Asia reported.
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Nikkei Asia is a pan-Asian news organization providing news and insights on the region’s most influential companies, with comprehensive coverage of politics, economics, markets and trends from an Asian perspective.
Pakistan’s budget has a huge deficit of PKR 7.5 trillion, which needs to be financed through debt. The government plans to borrow $17 billion from Pakistani banks and $8 billion from external sources.
But a Pakistani government official who requested anonymity said it would be almost impossible for Islamabad to borrow the amount it needs in the next fiscal year without an agreement with the IMF, Nikkei Asia reported.
Since November, Pakistan has been waiting for the completion of the ninth review of the IMF bailout program, which will release more than $1.1 billion in funds. But with the agreement expiring on June 30, time is running out.
Pakistan borrows only to manage its debt load. About half of the entire budget will be used to service debt, with $22 billion for domestic debt and $3 billion for external debt, according to Nikkei Asia.
Mahfooz Ali Khan, a member of the board of directors of the State Bank of Pakistan, told Nikkei Asia that under the new budget, Pakistan will spend a lot of money in non-productive sectors.
“After deducting the provinces’ share, almost all of the federal tax revenue will be used to pay down the debt,” he said.
Finance Minister Dahl said that while Islamabad wants to complete the plan, the current government does not plan to seek a new agreement with the IMF after the existing agreement expires on June 30, Nikkei Asia reported.
Budget documents show that Pakistan is expected to receive $2.4 billion in funding from the International Monetary Fund, suggesting the government is pinning its hopes on completing the full remaining Extended Fund loan.
After unveiling the budget, Dar said the government was now considering rescheduling bilateral debt, which accounts for 37 percent of Pakistan’s external debt. This shifts the focus to China, to which Pakistan owes $23 billion, according to the IMF’s country report for 2022, Nikkei Asia reported.
China has pledged in the past to help Pakistan, which is part of the $50 billion Belt and Road infrastructure initiative, “stabilize” its economic crisis.
The government official, who spoke on condition of anonymity, said Islamabad wanted Beijing to reschedule the debt and prevent a default even if the IMF did not cooperate. However, he acknowledged that “at the moment, there is no indication that China will agree to Pakistan’s request to reschedule its debt.”
Dahl insists the budget was not designed with regard to polls due later this year. But experts are still calling it an election budget as the government raised civil servants’ wages by 35 percent and raised the monthly minimum wage to Rs 32,000, Nikkei Asia reported.
The government has also set aside 1.1 trillion rupees for subsidies, 1.5 trillion for subsidies and 1 billion for health insurance for working journalists. All of these steps are seen as means to appeal to voters and the media.
Many questioned the prospect of holding a national vote as Prime Minister Sheikh Baz Sharif’s government blocked state elections amid a fight with predecessor Imran Khan. The budget did include Rs 4,800 crore earmarked for election spending, a strong sign that the government intends to hold polls in the year to next June, according to Asia’s Nikkei.
Shrinking fiscal space in Pakistan weighs on development spending. The total federal development budget of 1.2 trillion rupees, or about $4 billion, is barely meeting the country’s needs, especially after last year’s devastating floods.
Physical infrastructure suffered an estimated USD 14.9 billion worth of damage in this disaster; and an economic loss worth USD 15.2 billion as per the Pakistan Economic Survey 2022-23.
According to Nikkei Asia, Mahfooz Ali Khan, board member of the State Bank of Pakistan, said that none of the macroeconomic indicators showed any positive development, which means that the Pakistani economy needs a large injection of funds to recover.
Far from guiding Pakistan out of its economic crisis, the budget has exposed the government’s inability to manage its affairs without borrowing heavily. While the IMF’s outcome remains to be seen, many believe the plan has laid the groundwork for demanding major concessions from China. Beyond whether Beijing will play ball, it’s unclear what it will ask in return.
While questioning the viability of the budget, experts say the only hope of progress is to resolve a festering political crisis that has turned violent this year. (Arnie)
(This is an unedited and auto-generated story from a Syndicated News feed, the body of content may not have been modified or edited by LatestLY staff)
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