Rising energy prices, especially fuel, are a major driver of inflation in Pakistan (AFP/Farooq NAEEM)
The Pakistani government, facing serious financial difficulties, on Friday unveiled a budget of 14.5 trillion rupees (about 50.5 billion dollars) for the financial year 2023-24, more than half of which will be devoted to servicing the debt.
The economy of the world’s fifth most populous country, weakened by a balance of payments crisis, is trying to take on a crippling foreign debt, after months of political chaos that have scared off potential foreign investors.
Inflation has skyrocketed, the rupee has plummeted and the country is no longer able to import, which has dried up industrial production.
About 950 billion rupees is earmarked for development projects that are likely to appeal to voters in the general election scheduled for this year, among other electioneering measures like raising the pay of civil servants by up to 35% and by 17 .5% for retired civil servants.
Even if the elections are approaching, it is “a responsible budget rather than an electoral budget” assured the National Assembly on Friday the Minister of Finance Ishaq Dar.
The budget “will be useless if inflation is not reduced, the poor will only be relieved if inflation is reduced”, reacted Akhtar Khan Nawaz, a worker at a fruit and vegetable market in the capital Islamabad.
Prime Minister Shehbaz Sharif blamed his predecessor Imran Khan – ousted by a no-confidence motion in April – saying he was optimistic about a June extension of an International Monetary Fund (IMF) loan, crucial for getting out of the crisis.
According to him, the management of the IMF has “given its verbal commitment … there is no obstacle”.
To release a new tranche of the loan of 6.5 billion dollars concluded in 2019, the IMF, however, asked the country to obtain additional external financing, to remove part of the electoral subsidies and to let the rupee float freely against the dollar. .
Islamabad failed to meet any of its growth targets in 2022-23, according to a government report released on Thursday, with GDP expected to reach just 0.3 percent in the fiscal year ending June.
The budgetary assumptions count on 3.5% for the next financial year, well above the 2% forecast by the World Bank in a report published this week, and on annual inflation returning to 21% instead of 37.97%.
Pakistan’s economy was hit hard by record floods in 2022, which left nearly a third of the country under water, devastating agriculture and leaving tens of millions homeless.
The government is also under pressure from a tense political situation, underlines Nasir Iqbal, economist at the Pakistan Institute of Development Economics (PIDE).
The popularity of the campaign for Imran Khan’s return to power has turned into street violence since his brief arrest in May, leading to mass arrests and trials in military courts, in a country where the military has already succeeded at least three coups.
© 2023 AFP
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