As was being predicted the budget for 2022-23 has turned out to be one of the toughest in the country’s history. Pakistan is facing a severe balance-of-payments crisis. Its foreign exchange reserves have fallen sharply in the past two months. The cash-strapped country finds it difficult to buy coal or natural gas from overseas to fuel its power plants. Its five-year sovereign bonds are trading near 13 per cent, which is among the highest in the emerging markets. The new government is keen to stop the bleeding with an enhanced IMF package leading to more short-term loans from China and Saudi Arabia.
Pakistan needs $41 b53356n in next 12 months. No friendly country is willing to lend till there is a nod from the IMF. To strike a deal with the IMF, the government has already increased the prices of petroleum products and secured a determination from the power regulator for about Rs 8 per unit increase in electricity rates. However the agreement may not be reached until Pakistan takes wide-ranging steps to repair macroeconomic stability and reaches a consensus with the IMF on the next fiscal year’s tax proposals.
The budget is not aimed at providing immediate relief to the common man. The dole out of Rs 2,000 per poor family, lowest Income tax slab being raised from Rs 6 lac to Rs 12 lac and 15 percent rise in salaries will be wiped out by over 14 percent inflation. The rise in the price of petroleum products would stoke inflation. So would the economic stabilisation efforts which are likely to slow down the country’s growth prospects.
It Is widely understood that the prevailing instability is exacerbating the economic crisis. Political parties need to exercise some restraint and allow the needed economic correction to proceed unhindered. As PM Shehbaz Sharif told a pre-budget gathering of stakeholders, economic revival is interlinked with political stability. The ruling alliance leadership that gathered at former President Asif Zardari’s dinner sent out a message to the IMF, that the alliance stands solidly behind the deal with the Fund. They also sent an implicit message to the establishment that there have to be no early elections and no tolerance for marches aimed at government change if the economy is to be put on rails. But will Imran Khan care?