The government of Pakistan has revealed its budget for the upcoming fiscal year, allocating 14.5 trillion rupees (approximately $50.5 billion) to tackle the country's pressing economic challenges. With over half of the budget dedicated to servicing a staggering 7.3 trillion rupees of debt, Pakistan aims to address its cash-strapped state and stabilize its struggling economy.
Pakistan has been grappling with a severe balance-of-payments crisis, exacerbated by the burden of external debt and a decline in foreign investment due to prolonged political instability. The nation has experienced skyrocketing inflation, a plummeting rupee, and a notable reduction in industrial output, making it increasingly difficult to sustain imports.
In a bid to win favor with the electorate ahead of the upcoming general election, the budget includes a significant allocation of approximately 950 billion rupees for development projects. Furthermore, the government plans to implement populist measures such as substantial pay raises of up to 35 percent for civil servants and a 17.5 percent increase in state pensions.
During the budget presentation to the National Assembly, Finance Minister Ishaq Dar emphasized the prudent nature of the targets set in the budget. He stated, "Despite the approaching general elections, we have prepared a responsible budget rather than one focused solely on electoral gains." Dar aimed to reassure the public that the government is committed to fiscal responsibility.
Prime Minister Shehbaz Sharif attributed the economic morass to his predecessor, Imran Khan, who was ousted through a vote of no-confidence in April of the previous year. Sharif criticized Khan, stating, "Our preceding government has severely damaged the economy."
The impact of the budget on the general populace remains a concern. Akhtar Khan Nawaz, a laborer at a fruit and vegetable market in Islamabad, voiced his dissatisfaction, highlighting the plight of the poor. He remarked, "Unless inflation is reduced, this budget will be of no use. Relief for the poor can only be achieved through easing inflation."
Optimism surrounds Pakistan's ability to secure an extension on an International Monetary Fund (IMF) loan facility, vital for stabilizing the economy. Prime Minister Sharif expressed confidence in obtaining the extension later this month, noting the verbal commitment received from the IMF chief. However, meeting the IMF's requirements, which include obtaining additional external financing, phasing out populist subsidies, and allowing the rupee to freely float against the dollar, remains crucial for unlocking the next tranche of the $6.5 billion facility.
Despite the need for fiscal prudence, the latest budget designates 1.07 trillion rupees for subsidies, reflecting the government's recognition of the importance of appeasing the public in an election year. Nasir Iqbal, an economist at the Pakistan Institute of Development Economics (PIDE), remarked, "The government is inevitably forced to make such popular decisions during an election year."
Pakistan faced significant challenges in achieving economic growth targets for the previous fiscal year. According to a recent government report, GDP growth barely reached 0.3 percent, falling short of expectations. Finance Minister Dar, however, remains optimistic and has based the new budget on a projected GDP growth rate of 3.5 percent. The World Bank, in a recent report, projected a more conservative growth rate of two percent.
The budget also accounts for an annual inflation forecast of 21 percent, compared to the current year-on-year rate of 37.97 percent. Tackling inflation and stabilizing prices will be crucial for improving the overall economic situation in the country.
Pakistan's economy has faced additional challenges, including the devastating impact of record monsoon floods last year, which submerged vast areas of farmland and left millions of people homeless. Furthermore, the ongoing political crisis poses significant risks in the months ahead. The campaign of former Prime Minister Imran Khan, popular among the masses, has resulted in street violence following his brief arrest. The government has responded with a massive crackdown, including mass arrests and the scheduling of trials in military courts.
Pakistan's politics are heavily influenced by the military, which has historically staged successful coups, leading to prolonged periods of martial law. Moreover, the rise of militant attacks since the Taliban's takeover in neighboring Afghanistan has further undermined foreign investment prospects.
In light of these challenges, the government has allocated 1.8 trillion rupees for defense spending in the latest budget, an increase from the previous year's 1.5 trillion rupees, aiming to address security concerns.
