KARACHI: Pakistan wants to take the International Monetary Fund (IMF) on board as it prepares the budget for the next fiscal year, to be presented in parliament next month, an official with direct knowledge of the budget-making process said on Monday, but may have to go on without the multilateral body's nod amid an indefinitely stalled bailout program.
Pakistan’s coalition government is expected to present the budget before parliament in the first week of June 2023. The South Asian nation has been in economic turmoil for months with an acute balance of payments crisis while talks with the IMF, ongoing since November, to secure $1.1 billion funding as part of $6.5 billion bailout agreed in 2019 have not yet yielded fruit. Pakistan's foreign exchange reserves have fallen to cover barely four weeks of imports.
Consumer price inflation in Pakistan jumped to a record 35.37% in March from a year earlier, according to the statistics bureau. The March inflation number eclipsed February's 31.5%, the bureau said, as food, beverage and transport prices surged up to 50% year-on-year.
The delay in the IMF program has worsened Pakistan’s economic woes despite it getting external financing guarantees from friendly nations like Saudi Arabia, the United Arab Emirates and China. Officials say budgetary preparations are underway but the pace is slow, as the government is still trying to reach a deal with the IMF.
“The priority of the government is to take the IMF onboard before finalization of the budget for the next fiscal year, but [the] government may go ahead even without the Fund,” a government official with direct knowledge of the developments told Arab News on Monday, requesting anonymity as he was not authorized to speak to media on the issue.
Financial experts fear if Pakistan goes ahead with the budget without IMF approval, it would not only jeopardize the current bailout program but also make it tough to reach future deals.
The country is also facing debt repayment pressures and has to pay around $4.5 billion by June. A budget, experts warn, without external financing would be difficult.
“It would be difficult for Islamabad to announce a budget without the IMF,” Dr Sajid Amin, deputy executive director at the Sustainable Development Policy Institute (SDPI), told Arab News.
“But it is clear that with or without the IMF it would be [an] ‘election budget’, but if we don’t take the IMF onboard the budget would be worse and will further deteriorate our fiscal position.”
Amin said as Pakistan had fulfilled the basic requirements of the IMF's demands for fiscal restructuring, the organization should now allow some flexibility in the budget making process.
Pakistan had to complete a series of prior actions demanded by the IMF, which included reversing subsidies in the power, export and farming sectors, a hike in energy and fuel prices, a permanent power surcharge, jacking up the key policy rate, a market-based exchange rate, and raising over 170 billion rupee ($613.17 million) in new taxation through a supplementary budget.
“Basic conditions have been fulfilled including arrangement of external financing, a mini-budget and energy tariff hike,” Amin said, adding that the IMF should act as “part of the solution and not part of the problem.”
Experts believe that the signing of a Staff Level Agreement to revive the IMF bailout program was being delayed largely due to this year's upcoming elections, scheduled for October. The government is expected to dole out financial incentives in the next budget to convince voters ahead of polls and to stop the coalition government's political capital from sinking.
“The IMF is fully cognizant of the fact that in the election year, the [coalition] government will opt for a popular budget to win the voters,” Dr Ikram-ul-Haq, a Lahore-based economist and taxation expert, told Arab News. “The government is also delaying the process as it knows that strict compliance of IMF conditions will further diminish its political capital."
However, Ali Pervaiz, a member of the National Assembly’s Standing Committee on Finance, said the government’s priority should be to take the IMF on board before it finalizes the budget.
“We know that at present [the] foremost priority of the government should be the revival of the IMF program and whatever is needed should be done.”
Pervaiz, a member of ruling coalition party Pakistan Muslim League N (PMLN), said the target of the next budget would be Rs9 trillion.
“We [are] hearing that the target would be around Rs9 trillion, and you will have to take measures [to arrange the finances] accordingly,” he added.
However, he added that the best course of action was to dissolve the National Assembly and “leave budgetary decisions to the newly elected government."
