Pakistani flag waving alongside the IMF logo against a backdrop of the budget document for 2024-2025.

“2024/2025 Budget: Pakistan’s Blueprint for Economic Revival and IMF Deal”

The upcoming budget for Pakistan’s fiscal year 2024/2025 is crucial for securing a new bailout deal with the International Monetary Fund (IMF). Analysts suggest that the government will aim to set ambitious fiscal targets to demonstrate its commitment to economic reforms. Pakistan is negotiating a loan estimated to be between $6 billion and $8 billion to prevent a default in an economy currently experiencing the slowest growth in the region.

Economic Challenges and IMF Conditions

Ali Hasanain, head of the economics department at the Lahore University of Management Sciences, emphasized the importance of the budget in closing the gap between revenue collection and total expenditure, indicating that the budget will likely be contractionary. Last summer, Pakistan avoided a default through a $3 billion short-term IMF bailout. However, this came at a cost: reduced growth, decreased industrial activity, and high inflation, averaging nearly 30% in the last financial year and 24.52% over the last 11 months.

Growth Targets and Political Pressures

The growth target for the upcoming year is expected to be set at 3.6%, an improvement from the current year’s 2% and the economic contraction experienced last year. Prime Minister Shehbaz Sharif has committed to implementing tough reforms since his election in February. However, high prices, unemployment, and lack of job opportunities have created significant political pressure on his coalition government.

Implementation Challenges

Standard Chartered noted in a recent report that implementing the IMF’s recommended measures, such as increasing revenue by widening the tax base and raising power tariffs, will be challenging. The coalition government’s weakness, strong opposition, and the complexity of structural reforms contribute to these difficulties. The public might also react negatively to the immediate implementation of tough fiscal measures.

New Finance Minister’s Role

The budget will be a significant test for the new Finance Minister Muhammad Aurangzeb, previously the chief of HBL, Pakistan’s largest bank. He has been tasked with devising new policies to address the ongoing economic issues. Previous finance ministers have avoided difficult measures like cutting subsidies, reducing government spending, and increasing tax revenues from sensitive sectors like real estate, agriculture, and retail.

Privatization Plans

The budget will also focus on privatization targets, including the anticipated sale of a stake in the national airline, marking Pakistan’s first major privatization in nearly two decades. This sale is expected to be the beginning of a series of divestitures from loss-making entities, especially in the troubled power sector.

In conclusion, the upcoming budget is pivotal for Pakistan’s economic stability and its negotiations with the IMF. The government faces the dual challenge of implementing necessary but potentially unpopular reforms while managing political and public pressures.

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