According to the finance minister, the country has successfully overcome’ a period of economic weakness.
Pakistan is considering restructuring its bilateral debt regardless of whether its IMF review is successful, Finance Minister Ishaq Dar said on Saturday but reaffirmed that it will not contact Paris Club nation creditors or demand haircuts.
“We’ll see how things go,” Dar told reporters a day after publishing the budget for the fiscal year 2023-24, alluding to whether to restructure or reprofile debt while Pakistan continues to discuss its delayed bailout money with the IMF.
In either event, we will consult with bilateral creditors,” Dar said.
The minister insisted that the country has “successfully” overcome its economic weakness, putting an end to “further decline.”
In an attempt to pacify more than a dozen firms, the government presented a Rs14.5 trillion bloated budget with the highest-ever deficit of Rs7.6 trillion a day in early general elections, which may irritate the International Monetary Fund (IMF).
The country’s IMF programme expires this month, leaving around $2.5 billion in money unreleased while it attempts to reach a deal with the lender. The government is coping with record inflation, fiscal imbalances, and reserves barely sufficient to cover a month’s worth of imports.
According to an IMF national report issued last year, bilateral creditors made up $37 billion of Pakistan’s debt in fiscal year 2021, with $23 billion due to China.
Dar stated during today’s press conference that the government’s budget forecast of 3.5% economic growth for the fiscal year ending June 2024 was a “realistic target” and “on the lower side.”
He said he was “hopeful” Pakistan will pass its next IMF assessment, the country’s ninth, but he “didn’t think” it would pass any more evaluations.
Pakistan’s GDP is expected to expand by only 0.29% in the fiscal year that ends this month. According to the budget, the fiscal deficit for the next fiscal year was predicted to be 6.54% of GDP.
Dar stated that there was no more room in the budget to significantly cut the fiscal deficit objective.
In addition to currency and budget criteria, Pakistan must get strong and credible financial pledges to fill a $6 billion imbalance in its foreign reserves in order to release cash under its long-delayed ninth IMF review.
Only $4 billion in promises have been obtained by the government, primarily from Saudi Arabia and the United Arab Emirates.
Dar told the media today that the coalition government’s goal is to reverse economic losses, and that the first goal is to “achieve 2017’s economic indicators.”
He claimed that attempts are being made to avert further economic loss while admitting Pakistan’s “deep and steep” vulnerability.
Maintaining that the goal is to take Pakistan along the path of development, the finance minister stated that a growth rate of 3.5% can be easily reached with the full execution of the PSDP.
Dar stated that because debt servicing accounts for a large amount of this year’s budget, efforts will be taken to reverse the current trend.
He also stated that increased economic development will enhance the country’s macroeconomic indices, cut inflation, and generate more employment.
Reiterating that Pakistan will not default, he stated that the country’s goal is to become self-sufficient.
He also stated that requesting a debt restructure or write-off was not an option, but that discussions for extending the payback time may be undertaken. Dar added that the option exists and can be investigated at a later time.
The minister also claimed that no preparations were in the works to approach institutions in order to request debt restructuring, emphasising that Pakistan will pay its responsibilities.
When asked about subsidies, Dar acknowledged that the government had offered several subsidies. Citing the power industry as an example, he stated that the government had provided a subsidy of Rs1,900 billion and emphasised the importance of improving the sector.
He also admitted that the electricity sector has been a major “stumbling block” in discussions with the IMF.
In response to a query on driver subsidies, the minister stated that the aim was to charge cars larger than 800cc more per litre while granting a Rs50 discount to vehicles less than 800cc, adding that the proposal was “feasible.”
Dar stated once more that the government is dedicated to increasing exports, adding that the country was rated the 24th largest economy during the previous PML-N administration.
The minister expressed hope for the extension of the EU’s GSP Plus status for Pakistan and stated that the commerce and foreign affairs ministry was pursuing the topic.
Dar confirmed that the minimum salary has raised from Rs25,000 to Rs32,000, rather than Rs30,000 as stated in previous publications.
He also asked civic society to intervene when employees were paid less than the minimum wage. He further stated that the pension amount has been enhanced to Rs12,000 from Rs10,000 previously.
The Budget :
Dar stated during the budget unveiling in the National Assembly that “the next fiscal year’s budget will not be an election year budget, but rather a fiscally responsible budget.” He said, “No independent analyst could say otherwise.”
However, the data revealed that the government had announced Rs80 billion for the Prime Minister’s Package, Rs90 billion for programmes for lawmakers, and Rs50 billion for provincial environmental projects.
The finance minister recommended tax breaks for the information technology industry, publicly traded enterprises, overseas Pakistanis, and young entrepreneurs, as well as tax breaks for builders and dealers. He also extended the former Federally Administered Tribal Areas’ tax-free status.
People encountered issues as a result of the currency depreciation and an increase in the State Bank of Pakistan’s (SBP) policy rate, according to Dar, but “we sacrificed our political gains for the sake of improving the economy.”
According to the budget documents, the administration had little optimism that the IMF programme would be revived. The extra $2 billion Saudi loan and the new $1 billion UAE loan had not been reported against receipts for this fiscal year. Instead, the loans are included in the next fiscal year’s receipts.
To qualify for the staff-level agreement, the IMF required the arrangement of $6 billion in additional loans. The finance minister stated that the IMF programme was a top priority for the administration and that it was working hard to resurrect it by the end of June.
Despite the fact that the project ends on June 30, the government reported $2.4 billion in IMF loan receipts for the upcoming fiscal year. Dar has already ruled out any fresh government programme negotiations.
Furthermore, the government has set aside $1.5 billion for Eurobonds and $4.5 billion for additional foreign commercial loans for the next fiscal year.
Dar declared in his budget address that no additional taxes will be levied in the coming fiscal year. However, according to the Finance Bill of 2023, the government has imposed a 50% windfall profit tax, a 0.6% withholding tax on cash withdrawals, a 10% to 20% tax on bonus shares, and a Rs200,000 tax on every foreign worker working in Pakistan.
The government proposed additional taxes of Rs233 billion, excluding the impact of bonus shares and the 50% tax on windfall income.
The budget deficit (the difference between spending and income) for the fiscal year 2023-24 was anticipated to be 7.2% of GDP. According to budget papers, this was fairly significant, amounting to Rs7.6 trillion in absolute terms.
Dar stated that the government expects the economy to grow by 3.5%, with a $30 billion export target for the upcoming fiscal year. He went on to say that remittances from Pakistanis living abroad accounted for 90% of exports. The government anticipated that it will send $33 billion in FY24.
He stated that the tax on expatriate Pakistanis investing in real estate was suggested to be repealed. They would also have access to expedited immigration at airports.