Pakistan lays out budget but may not satisfy IMF

The ‘plain-vanilla’ budget is unlikely to satisfy IMF, which could lead to the South Asian nation defaulting on debt.

Pakistan’s government will target a budget deficit of 6.54 percent of economic output in the fiscal year starting on July 1, the finance minister said on Friday, slightly below the current year’s revised estimate of 7 percent.

Finance Minister Ishaq Dar announced the target during his budget speech to the national legislature.

The deficit target for the fiscal year ending this month had been revised higher, from a previous projection of 4.9 percent.

The budget needs to satisfy the IMF to secure the release of stuck bailout money for the crisis-struck country, which is due to hold a general election by November.

The government had prepared “a responsible budget, not an election budget”, Dar said.

The total spending target would be 14.46 trillion rupees ($50.45bn), Dar said, with 1.8 trillion rupees ($6.2bn) going to defence. It would target debt servicing of 7.3 trillion rupees ($25.4bn).

Dar reiterated that the government hoped to get an agreement with the IMF soon, echoing comments made earlier in the day by Prime Minister Shehbaz Sharif as he addressed his cabinet.

Sharif’s government is hoping to persuade the IMF to unlock at least some of the $2.5bn left in a $6.5bn programme that Pakistan entered in 2019 and which expires at the end of this month.

Potential for default
Some analysts said the budget was unlikely to impress the IMF.

“It is a plain vanilla budget with no path to structural reforms,” said Shahbaz Ashraf, chief investment officer at Karachi-based investment firm FRIM Ventures.

On Thursday, the IMF said it has been discussing the budget with Pakistan with a focus on balancing debt sustainability while creating space to increase social spending.