Finance Minister Ishaq Dar rolled out the numbers for budget 2023-24 in the National Assembly with a cold conviction, as if torn between the International Monetary Fund (IMF) diktats and the hopes of a people pauperised by runaway inflation.
While some analysts initially labelled the budget as a reasonable attempt given the constraints on Pakistan’s economy, detractors quickly entered the fray by launching a succession of broadsides against the finance minister.
Some criticism directed against the finance minister was partially caused by Dar’s post-budget statement about Pakistan seeking to reprofile or reschedule its bilateral debt.
All this commotion, however, has left the common people confused about how to evaluate the performance of the coalition government, in general, and that of Dar, in particular.
To develop a better purchase of this budget, there is a need to properly contextualise this policy document by identifying the political and economic pressures on Pakistan’s economy.
While many economists believe that the global economic downturn and 40-year-high inflation are responsible for Pakistan’s present economic woes, this coalition government also seems to have made some policy decisions in haste. For instance, changing finance horses in midstream could have been avoided, given Pakistan was engaged in tough negotiations with the IMF.
Assuming this will be an election year, this coalition government is under tremendous political pressure owing to the ongoing stagflation — negligible growth at 0.29% and record-high inflation at 38%.
Given such high levels of economic misery, the government would have done its utmost to provide a “populist” budget as it would have won the government more political support. Usually, populist budgets involve fiscal spending, thereby increasing the fiscal deficit.
Even though the government may have wanted to go on a spending spree, its hands were largely tied due to the conditions laid down by the IMF regarding the fiscal deficit.
As a result, where the budget is being branded populist, it is actually reducing the fiscal deficit by almost 1.5% of GDP over the last two years. And, where analysts are rightly concerned about the huge amount of debt-related interest payments in the next three years, the government is actually covering its operational expenses by generating a primary surplus — surplus before making debt-related interest payments.
Given the political and economic constraints, this budget appears to be a reasonable attempt at narrowing the twin deficits
Where the full implications of the present budget will become clearer with time, there are some bright spots in the budget. For instance, the allocation of the BISP has been increased to Rs450 billion with the promise of matching stipends — currently at Rs3,000 per family per month — to inflation.
The importance of enhancing social safety programmes like BISP or increasing the minimum wage cannot be stressed more, given that stagflation has pushed almost two million additional Pakistanis below the poverty line.
The substantial increase in the federal Public Sector Development Programme (PSDP) from Rs567 billion to Rs1,150 also holds promise, provided this amount is utilised efficiently and transparently.
This is for the simple reason that PSDP remains the mainstay intervention for bringing about GDP growth and job creation. PSDP’s special focus on youth welfare is also a welcome development, given that Pakistan is a very young country with a median age below 23 years.
Nonetheless, this budget has been criticised for giving an exorbitant increment to public-sector employees and not sharing tangible plans for privatising State-owned Enterprises (SOEs). The criticism of providing a substantial increase may be partially justified as this increment could have been spread over two years, but criticism for not providing privatisation plans is not.
It should not be forgotten that SOEs’ privatisation is a major undertaking that a government with a weak mandate is not going to attempt, especially in an election year when one of its key allies has been opposed to privatisation, at least in the past.
All in all, given the political and economic constraints, this budget appears to be a reasonable attempt at narrowing the twin deficits — fiscal and external — that plague this economy.
It is unclear why Dar has come under criticism as pre-emptive debt reprofiling for Pakistan was also recommended in a recently-concluded conference on debt sustainability at Boston University.
Debt reprofiling is usually done to assist with foreign exchange liquidity by extending maturity and increasing interest rates so as to preserve the Net Present Value.
Even though Prime Minister Shehbaz Sharif has sounded increasingly confident with respect to successfully concluding the ninth review with the IMF, detractors are still not buying it.
Perhaps, the only way to evaluate the merits of the present budget is to wait until the end of June to see whether Pakistan and the IMF sign on the dotted line. The proof is in the pudding, as they say.
In an effort to strengthen the port’s economic importance, the Federal Government has made the decision to direct fifty percent of all imports from the public sector to Gwadar Port.
By taking this action, which has the backing of the Special Investment Facilitation Council, the port’s financial situation is going to be improved.
The Cabinet will be presented with a summary of imports through Gwadar by the Ministry of Maritime Affairs, which will take place after Prime Minister Shehbaz Sharif’s recent trip to China.
When the next Cabinet Meeting takes place, Ahsan Iqbal, the Federal Minister for Planning, Development, and Special Initiatives, will examine the Chinese offer for the Karachi to Hyderabad Section of the ML-1 Project and bring it to the Cabinet.
Company preparations for the Shanghai International Import Expo, which will take place in November 2024, are being made by the Board of Investment and the Ministry of Commerce of Pakistan.
One of the most important aspects of the China-Pakistan Economic Corridor is the Gwadar port, which serves as a significant commerce route connecting China, the Middle East, Africa, and Europe. At this time, the Gwadar Port is able to accommodate two huge ships, and by the year 2045, it is anticipated that it would be able to handle up to 150 ships.
By developing the Gwadar Port, regional connectivity would be improved, employment will be created, and international investment will be attracted.
Gold prices in Pakistan surged significantly on Thursday following two consecutive days of decline, with the price per tola rising by Rs2,000 to reach Rs262,100. This increase was in accordance with the downward trend in international market values.
The All-Pakistan Gems and Jewellers Sarafa Association (APGJSA) reported that the price of 10 grams of 24-karat gold rose by Rs1,714, reaching Rs224,708.
Conversely, the world gold market experienced an upward trajectory. According to the APGJSA, the global price of gold surged to $2,503 per ounce following a $22 gain during the trading session.
The local market experienced a significant decline in silver prices, decreasing from Rs50 to Rs2,900 per tola after a prolonged period.
The local market’s gold prices remain subject to the ever-changing dynamics of the international market, as well as domestic considerations such as currency exchange rates and domestic demand.
On Tuesday night, there were virtual talks between representatives of the Finance Ministry and the IMF delegation, with the main topics being external finance and income generation.
According to people familiar with the situation, no date has been set for the IMF’s Executive Board to approve the loan despite the ongoing negotiations.
Officials from the Finance Ministry informed the IMF mission about the government’s initiatives to get outside funding during the discussions. Updates on loan rollovers and fresh finance commitments from allies were included in this. According to sources, the IMF has received a schedule, and loan rollovers are expected to be finished by the end of next week.
The $12 billion in debt must be rolled over before the loan can be approved by the Executive Board, according to the IMF mission.
In the virtual discussions, representatives of the Federal Board of Revenue (FBR) conversed with the IMF team over the revenue deficit. The FBR must reach its revenue goals for this month, according to the IMF mission. As a result, the IMF has asked the FBR to submit a thorough strategy outlining how it will close the gap left by the shortfall and guarantee that revenue goals are reached.
Apart from the conversations on outside funding, there are rumors that the Finance Ministry is actively holding talks with commercial banks in order to obtain new funding. According to reports, negotiations are taking place with four distinct sources for commercial loans, which are anticipated to support the government’s overall financial plan.
Finance Minister Muhammad Aurangzeb disclosed on Tuesday that the IMF was in favor of introducing targeted subsidies. He said that qualifying recipients might receive these subsidies through the Benazir Income Support Programme (BISP).
In order to guarantee consistency, the minister announced that this week’s talks with chief ministers will focus on implementing a similar policy across the country. He was having a casual conversation in parliament with the journalists.
In response to queries about outside funding, Aurangzeb revealed a $2 billion deficit and said that talks to close this gap are progressing. He stressed how crucial it is to obtain business loans.
He went on, “At this point, there’s a need to secure an agreement for commercial loans, not exactly their issuance,” emphasizing that debt rollover negotiations are nearing their conclusion and doing well. The minister expected that these developments would shortly be reported to the governments of allied countries by relevant authorities.