Pakistan’s economy is suffering from a balance-of-payments crisis as it attempts to repay its huge external debt, following months of political chaos that drove out any potential foreign investment.
Inflation rose, the rupee fell, and the country could no longer afford to pay for its imports, causing a sharp drop in industrial production.
About Rs 950 billion has been earmarked for development projects ahead of general elections due later this year, while other populist measures include raising civil servants’ salaries by up to 35% and raising them by 17.5% state pensions.
Finance Minister Isaac Dar, who presented the budget to parliament on Friday, said the targets had been carefully set.
He added, “General elections will soon be held in the country, but despite this, the budget for the next fiscal year has been prepared as a responsible budget, not an election budget.
Prime Minister Shahbaz Sharif blamed his predecessor Imran Khan, who was ousted in a vote of no confidence in April 2022, saying “our previous government destroyed the economy”.
Shahbaz Sharif said he was optimistic about securing a financial facility from the International Monetary Fund later this month, which is crucial to avoiding an economic collapse.
He added that “the head of the International Monetary Fund has given his verbal commitment…there is no impediment.”
Pakistan has been told by the International Monetary Fund that it must obtain additional external financing, cancel a series of social benefits and float the rupee against the dollar, before facilitating another tranche of a loan facility of $6.5 billion.
However, the last budget allocated 1.07 trillion rupees to support commodity prices.
“The government should definitely take such populist decisions, because it’s an election year,” said Nasir Iqbal, an economist at the Pakistan Institute of Development Economics (PIDE).
Pakistan failed to meet any of its economic growth targets for the financial year 2022-23, according to a government report released on Thursday, with GDP growing at 0.3%.
Dar said on Friday the latest budget was based on gross domestic product growth of 3.5%, although the World Bank forecast a less ambitious 2% growth in a report released earlier this week.
The annual inflation forecast was 21%, against an annual rate of 37.97% currently.
In addition, the economy was hit by record seasonal floods last year, which submerged almost a third of the country, destroying large swaths of farmland and leaving tens of millions homeless.
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