Pakistan tightens budget as dictated by IMF to clinch funds

Pakistan has changed its budget for the financial year starting on 1 July, Finance Minister Ishaq Dar said on Saturday, including the latest fiscal tightening measures dictated by International Monetary Fund in a final effort to clinch a stalled rescue package. “Pakistan and IMF had detailed negotiations for the last three days as a last effort to complete the pending review,” he told Parliament.
“For the fiscal year starting next month, Pakistan will raise a further Rs 215 billion ($752 million) in new tax and cut Rs 85 billion in spending, as well as a number of other measures to shrink the fiscal deficit,” he said. This will revise Pakistan’s revenue collection target to Rs 9.415 trillion ($33 billion) and put total spending at Rs 14.480 trillion ($51 billion), Dar said. “These changes will make our fiscal deficit much better,” he said. “We have ensured that the new tax will not affect the poor,” he claimed, and said the petrol levy will be raised from Rs 50 to Rs 60, and will be capped at the new ceiling for any future changes.
He also announced lifting of restriction of all imports enforced in December in a bid to cut the current account deficit, which has been one of the major concerns by the IMF to release the funds. According to Dar, money allocated for cash handouts to the poor was also revised from Rs 450 billion rupees to Rs 466 billion for fiscal 2024. The review came a day after Prime Minister Shehbaz Sharif met with IMF Managing Director Kristalina Georgieva on the sidelines of the Global Financing Summit in Paris. There is less than a week to go before the IMF’s Extended Fund Facility agreed in 2019 expires on 30 June. Under the $6.5 billion facility’s ninth review, negotiated earlier this year, Pakistan has been trying to secure $1.1 billion of funding, which has been stalled since November.
With central bank foreign exchange reserves barely enough to cover a month of controlled imports, Pakistan is facing an acute balance of payment crisis, which analysts say could spiral into a debt default if the IMF money doesn’t come through. The IMF funding is critical to unlock other bilateral and multilateral financing for the debt-ridden South Asian economy. “I hope, God willing, that we will have an agreement with the IMF,” Dar said.