Pakistan targets 6.54% deficit with $50.45bn budget to unlock IMF funds

Pakistan’s finance minister has announced a budget deficit target of 6.54% of economic output for the upcoming fiscal year, starting July 1. This figure is slightly lower than the current year’s revised estimate of 7%. The budget aims to satisfy the International Monetary Fund (IMF) to secure the release of bailout funds for the crisis-stricken country, which is due to hold a general election by November.

Finance Minister Ishaq Dar stated that the government had prepared “a responsible budget, not an election budget.” The total spending target is set at 14.46 trillion rupees (US$50.45bn), with 1.8 trillion rupees (US$6.2bn) allocated to defence and 7.3 trillion rupees (US$25.4bn) for debt servicing.

Prime Minister Shehbaz Sharif’s government hopes to persuade the IMF to unlock at least some of the US$2.5bn remaining in a US$6.5bn programme that Pakistan entered in 2019 and which expires at the end of June. However, analysts believe the budget may not impress the IMF, citing a lack of structural reforms and potential requests for more measures around revenue collection.

The budget targets total tax revenue of 9.2 trillion rupees (US$32bn), with no new tax on the industrial sector. It also aims for net external financing of 2.5 trillion rupees (US$8.7bn) for the fiscal year ending in June 2024, with 1.6 trillion rupees (US$5.5bn) coming via commercial and Eurobond borrowing.

Despite these efforts, former World Bank adviser Abid Hassan warns that there is “less than a 50% chance” of satisfying the IMF. He adds that while default is not imminent, it is 100% likely in six months unless a new IMF programme brings in private sector money and encourages other lenders to provide additional support to Pakistan.