Pakistan Faces Tough Budget Choices as Pandemic Cloud Lifts
(Bloomberg) -- Pakistan’s Finance Minister Shaukat Tarin will on Friday find himself walking the fine line between spending big to sustain an economic recovery and keeping the budget deficit in check as the nation emerges from the worst of the pandemic.
Boosting spending on big-ticket projects and vaccination will be on top of Tarin’s agenda, along with raising revenue to cut reliance on debt. The budget speech usually starts in the afternoon in Islamabad.
The budget is an opportunity for Tarin to strengthen Pakistan’s fragile economy, which is currently under a $6 billion bailout program from the International Monetary Fund. A drop in coronavirus cases is seen as a huge positive for the nation, with key cities including commercial hub Karachi relaxing pandemic curbs and allowing some businesses to reopen.
Here are four key numbers to look out for in the annual spending plan:
The budget will be built on economic expansion forecasts of 3.9% in the year ending June 30, and 4.8% in the next fiscal year. To achieve that, the federal government will have to boost development expenditure.
As much as 900 billion rupees ($5.8 billion) will be earmarked for development spending in the year beginning July, compared with 650 billion rupees this year, according to the government. The finance ministry is considering a stimulus package to support the economy, people familiar with the matter had said earlier.
Growth in spending will be key to boost economic activity in the nation that needs to create jobs for two million people joining the workforce every year.
Tarin is likely to target tax revenue of 5.8 trillion rupees next year, compared with this year’s 4.7 trillion-rupee target. It remains to be seen what precise measures he employs to boost tax to GDP ratio.
“Unless we get more revenues, forget about any incentives to boost the economy,” he had said in an interview last month.
While the pandemic may make the path toward balancing the budget a difficult one, Tarin is expected to shrink the deficit by as much as 1.5% percentage points next fiscal year, from an estimated gap of about 7% of gross domestic product this year. The shortfall was 8.1% in the previous year.
The federal government might look to sell debt overseas for a second straight year, including a possible Eurobond issuance. Pakistan sold $2.5 billion of bonds in March, its first overseas sale since 2017.
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