- Increases to 8.9% of GDP in year that ended June compared with 6.6% a year earlier, Bloomberg reports
- Figures come ahead of IMF first quarterly review of bailout program that aimed to curtail fiscal blowout
ISLAMABAD: Pakistan’s budget deficit rose to the highest in almost three decades, ahead of the International Monetary Fund’s first quarterly review of a bailout program that sought to curtail a fiscal blowout, Bloomberg reported on Tuesday.
The deficit increased to 8.9% of Pakistan’s gross domestic product in the year that ended June compared with 6.6% a year earlier, according to provisional numbers released by the Finance Ministry.
“That’s a big miss for the government, which targeted a narrower 5.6% gap,” the Bloomberg report said.
Pakistan has to increase government revenue by more than 40% in the fiscal year that began in July, as part of the conditions for a $6 billion loan approved by the IMF board in July to rein in mounting debts and stave off a looming balance of payments crisis, in exchange for tough austerity measures.
The program will require “decisive fiscal consolidation” and a multi-year plan to strengthen Pakistan’s notoriously weak tax system as well as large scale reforms that have piled pressure on the government of Prime Minister Imran Khan.
“Pakistan’s loan from the IMF could be in jeopardy if the trend of the government missing revenue target continues,” the Bloomberg report said.
“It seems an uphill task,” Samiullah Tariq, director research at Arif Habib Ltd., in Karachi told Bloomberg “If they’re unable to meet the target for the quarter, then a mini budget to raise taxes is possible in order to clear the next IMF quarterly review.”
The total revenue declined by 20% in the latest quarter due to a 98% decline in non-tax revenue, Tariq said.
Khan came to power last August, inheriting an economy plagued with problems. But he was initially deeply reluctant to turn to the IMF, which has provided more than 20 bailout packages to Pakistan over the decades.
However, despite securing billions of dollars in loans from friendly countries including China, Saudi Arabia and the United Arab Emirates, mounting economic headwinds forced his government to turn to the fund.
With foreign exchange reserves shrinking to only $7.3 billion, less than the equivalent of two months’ worth of imports, and the budget deficit set to top 7% of gross domestic product this year, Pakistan faces tough economic medicine to tackle problems that have been years in the making.
Dominated by agriculture and textiles and with a large informal sector that pays no tax, the economy has struggled to develop export industries and successive governments have spent heavily to defend an overvalued exchange rate.
The $60 billion China Pakistan Economic Corridor, launched in 2015, had promised a new beginning. Its infrastructure projects were intended to become a new foundation for growth, but they also required heavy imports of capital equipment, widening the trade deficit.
According to IMF forecasts, real GDP growth is expected to slow to 2.4% in the current fiscal year to June 2020, down from 3.3% in the year just ended.