Why Pakistan’s budget is not enough to get IMF loan?

Pakistan’s plan to trim its deficit by slashing spending may not be enough to convince the International Monetary Fund to resume its loan program, Bloomberg quoted economists at Citigroup Inc.

The tax-to-GDP ratio is budgeted to rise to 9.2% of the gross domestic product in the year starting July 1 from 8.6%, which seems low versus Pakistan’s emerging market peers and its own history, Johanna Chua and Gaurav Garg wrote in a note to clients Monday. Interest payments are estimated to consume about 44% of revenue.

“We await further fund feedback,” Chua and Garg wrote, before meetings due this month between IMF staff and Pakistani officials.

Pakistan is seeking an immediate disbursement of $900 million from the IMF, to help avert a potential default. Surging food and fuel prices have stoked Asia’s second-fastest inflation and debt repayments eroded Pakistan’s foreign-exchange reserves to below $10 billion as of June 3, or enough to cover less than two months of imports.

Pakistan needs at least $41 billion in the next 12 months, according to Finance Minister Miftah Ismail, which analysts including Saad Khan from IGI Securities Ltd. anticipate will be met but only barely.

58% allocations for debt payment, defence

The Pakistan Muslim League Nawaz (PML-N) government had presented a budget of Rs9,502 billion in the National Assembly (NA) on June 10.

58% of the budget had been earmarked for defence and payment of loans and interest. That is, only 42% of the budget will be spent on the development and prosperity of Pakistan.

The budget for the next financial year 2022-23 was presented by Finance Minister Miftah Ismail in which Rs1,523 has been allocated for defence while Rs3,950 billion has been set aside for debt and interest payments.

Rs3439 billion was allocated for the repayment of internal debts and Rs511 billion has been set aside for the repayment of foreign loans.

In the budget 2022-23, it is proposed to set aside Rs1,523 billion for defence.

Out of Rs1,523 billion, it was recommended to allocate over Rs724 billion for the Pakistan Army, Rs323.71 billion for Pakistan Air Force (PAF) and Rs165 billion for Pakistan Navy.

Economic analysts had said the major portion of the budget will be spent on debt and interest payments and defence, with the remaining 42% left over for the development and prosperity of Pakistanis who are already facing the menace of inflation and back-to-back crises.

‘Unrealistic assumptions’

Pakistan Tehreek-e-Insaf (PTI) Chairman and former premier Imran Khan had criticised that the federal budget for the FY2022-23 was based on unrealistic assumptions about inflation and economic growth.

Imran Khan wrote on Twitter, “We reject this anti-people and anti-business budget presented by the imported government.

“Budget is based on unrealistic assumptions on inflation (11.5%) and economic growth (5%). Today’s SPI of 24% indicates that inflation will be between 25/30% which on the one hand will destroy the common man.”

“And on the other hand retard economic growth due to high interest rates. All our progressive tax reforms and pro-poor programs such as the Sehat card and Kamyab Pakistan are being shelved. It is an unimaginative, Purana Pakistan budget creating more burdens & misery for the nation.”