Crafting budget amid economic severities
GENERALLY, the Government’s crafted budgets in Pakistan have had their profound influence generated by the lobbies of trade and industry- hustling around for favourable concessions; yet this year such spirit of enthusiasm is lacking by the stakeholders because of the given economic situation where hopes are already grim that the upcoming budget could be people friendly. Despite the fact that miracles to salvage the economy will not happen, our enemies’ evil desire that Pakistan may default yet seems a remote scenario as assured by our Finance Minister. Though some may call it an election budget, the Government claims that it tries to present a moderate budget.
“God-willing, we will be coming up with new ideas in the weeks to come. There will be the budget and some work after that as well for Pakistan’s long-term betterment. We will bring an agricultural revolution in Pakistan, [and] a sovereign wealth fund will be created, “finance minister Ishaq Dar said. The FM Ishaq Dar has already assured the nation, ’‘Pakistan would be able to make its debt payments due until December this year and would not default, with or without the revival of an International Monetary Fund (IMF) bailout program’’. Meanwhile, Moody’s Investors Service warned that Pakistan could default without an International Monetary Fund (IMF) bailout as the country faces uncertain financing options beyond June. Nonetheless, this optimistic approach adopted by our Finance Minister seems posited by the belief to shortly strike a deal with the IMF yet FM’s optimism cannot shroud the ground economic realities that Pakistan faces today.
Pakistan debt crisis: notably a major share of Pakistan’s debt is owed to multilateral institutions, amounting to roughly $45 billion. Islamabad’s main multilateral creditors include the World Bank ($18 billion), the Asian Development Bank ($15 billion) and the IMF ($7.6 billion). Pakistan owes smaller amounts to the Islamic Development Bank and the Asian Infrastructure Investment Bank as well. Pakistan’s large external debt comes with considerable repayment pressure. From April 2023 to June 2026, Pakistan needs to repay $77.5 billion in external debt.
Pakistan faces near-term debt repayment pressure. From April to June 2023, the external debt servicing burden is $4.5 billion. The major repayments are due in June when a $1 billion Chinese SAFE deposit and a roughly $1.4 billion Chinese commercial loan would mature. Pakistani authorities hope to convince the Chinese to refinance and rollover both debts, something the Chinese government and commercial banks have done in the past.
The most difficult challenge faced by the country today in the short term is external liquidity problem, i.e., the ability to meet its current obligations such as imports of goods and services and meet all debt service obligations at the same time. There is a gap between external receipts and external payments of about $ 2.5-3 billion annually for the next few years. To meet this gap Pakistan has to reschedule its debt service obligations and find ways to obtain new concessional loans after curtailing its expenditures and maximizing its revenues.
There is a significant external element to the crisis as well, with rising global food and fuel prices in the wake of Russia’s war in Ukraine. The combination of all these factors has spelled perhaps the greatest economic challenge Pakistan has ever seen. Yet the government has been mired in politicking, and the release of a $1.1 billion loan tranche from the International Monetary Fund (IMF) remains stalled as Islamabad has pushed back on the IMF’s conditions. In this budget, the Government intends to give priorities to the energy and the IT sector.
Amid the struggle to repay its debt, the country is currently scarred by a rapid depreciation of the dollar, low investor confidence, soaring inflation, and plummeting foreign reserves, all of which dampen the possibility of generating any finances which could repay the external debt. Hence, it is being forecasted, based on the aforementioned macroeconomic markers that Pakistan is on the brink of a national economic default. In order to fulfil its external liabilities of debt servicing$ 27 billion for the financial year 2023-24, Islamabad still faces the shortfall approximately $ 4 billion. This crisis has upped the ante because of the IMF’s serious delay in concluding the ninth review of loan facility to Pakistan. So far, the IMF is constantly showing its recalcitrant approach vis-à-vis the economic aid package.
Nevertheless, the Government’s budget strategy paper covering the short and medium-term is being strategized to support the reform direction to increase government revenues, expenditures curtailed, while public debts would be brought down as a percentage of gross-domestic-product(GDP). Moreover, the budget strategy must also respond to government’s priorities– characterizing Pakistan as a welfare-state, creation of jobs, reduction of poverty and helping agriculture, industrial and services sectors of the economy, while also tapping the potential of the private sector in a major way to induce an export led growth.
Arguably, budget planning and preparation should be at the heart of good public expenditure management. To be fully effective, public expenditure management systems require four forms of fiscal and financial discipline: Firstly, control of aggregate expenditure to ensure affordability; that is, consistent with the macroeconomic constraints. Secondly, effective means for achieving a resource allocation that reflects expenditure policy priorities. Thirdly, efficient delivery of public services (productive efficiency). Fourthly, minimization of the financial costs of budgetary management.
Though the ECC has approved 402 billion Rupees for debt servicing, the Government has to adopt a mega strategy to counter the apprehension that by the end of September, Pakistan’s foreign reserves are likely to drop below the critical level of $ 2 billion. The Government’s cosmetic strategy of barter trade system with Afghanistan, Iran and Russia, cannot provide a lasting relief. Thus, five economic parameters that Pakistan needs to respectively adopt are: investing more to address the country’s challenges; raising more revenue to have resources for critical investments: decentralizing the service delivery to improve competitiveness; improving the business environment to tap into foreign resources; accelerating the implementation of economic reforms and taking necessary governmental austerity measures at the provincial and federal level.
—The writer, an independent ‘IR’ researcher-cum-international law analyst based in Pakistan, is member of European Consortium for Political Research Standing Group on IR, Critical Peace & Conflict Studies, also a member of Washington Foreign Law Society and European Society of International Law. He deals with the strategic and nuclear issues.
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