Virendra Pandit
New Delhi: With no lender ready to help it any longer, a nearly bankrupt Pakistan has set aside half of its USD 51 billion budget for the financial year 2023-24 to service its crippling external debt amounting to over USD 125 billion.
No new taxes have been levied in this budget as General Elections to the National Assembly are expected later this year.
With an unprecedented 38 percent inflation—even higher than Sri Lanka’s 35 percent a year ago–Pakistan’s economy has nosedived because of a severe balance-of-payments crisis and its currency has plummeted to an all-time low of Pakistani Rupees (PKR) 287.15 to a US dollar.
Months of political chaos have scared off potential foreign investments. Islamabad can no longer afford any imports, causing a severe decline in industrial output and exports, and spiraling unemployment, food crisis, and starvation.
Against this grim scenario, the Shehbaz Sharif government unveiled a PKR 14.5-trillion (USD 50.5 billion) budget on Friday, with over half of it set aside to service the PKR 7.3 trillion rupees of debt.
In the fresh budget, about PKR 950 billion was earmarked for vote-winning development projects ahead of a general election expected later this year, while other populist measures include civil service pay hikes of up to 35 percent and a 17.5 percent increase for state pensions, the media reported on Saturday.
Presenting the budget to the National Assembly, Finance Minister Ishaq Dar claimed his targets are prudent.
Even amid the existential crisis, he earmarked PKR 1.8 trillion for defense spending—up from last year’s PKR 1.5 trillion.
“There are general elections in the country soon, but despite that the next fiscal-year budget is prepared as a responsible budget instead of an election budget,” he said.
Prime Minister Shehbaz Sharif blamed his predecessor Imran Khan—ousted by a vote of no-confidence in April 2022—for the unprecedented crisis.
“Our preceding government has battered the economy,” he lamented.
About the long-pending loan from the International Monetary Fund (IMF), Sharif said he was still optimistic to get this facility crucial to keeping the economy afloat.
“The IMF chief has given his verbal commitment… there is no hindrance,” he said.
But the IMF told Pakistan curtly that it needs to secure additional external financing, scrap a swathe of populist subsidies, and allow the rupee to float freely against the dollar before unlocking another tranche of the USD 6.5 billion facilities.
Ignoring this condition, however, Pakistan’s latest budget set aside PKR 1.07 trillion worth of money for subsidies.
Pakistan failed to meet any economic growth targets for FY23, according to a government report released on Thursday, with GDP growth remaining a miserly 0.3 percent.
Dar said the latest budget was based on projected GDP growth of 3.5 percent, although the World Bank projected a less-ambitious two percent growth in a report issued earlier this week.
It also had an annual inflation forecast of 21 percent, against a current year-on-year rate of 37.97 percent.
Pakistan’s economy was also ravaged by record monsoon floods last year that left almost a third of the country underwater, laying waste to vast swathes of farmland and leaving tens of millions homeless.
But the political crisis remains the biggest risk factor in the months ahead.
Former PM Imran Khan’s hugely popular campaign to return to office spilled into street violence after his brief arrest on May 9, prompting a massive crackdown on his party, Pakistan Tehreek-e-Insaaf (PTI), including mass arrests and trials scheduled for military courts.
The omnipotent Pakistan Army continues to hold its vice-like grip and undue influence over national politics, having staged at least three successful coups leading to decades of martial law since it broke away from democratic India in 1947.
Attacks by militants have also risen since the Taliban took control in neighboring Afghanistan in 2021, further undermining the prospect of foreign investment.