Pakistan’s Finance Minister Asad Umar said the government’s budget deficit is expected to swell as a previous forecast was unrealistic in the face of a deepening financial crisis.
The shortfall may widen to as much as 7.2 per cent of gross domestic product this financial year through June, Umar told parliament in Islamabad on Tuesday as he announced an emergency supplementary budget. The budget deficit for last year is now estimated at 6.6 per cent, overshooting an earlier 4.1 per cent target.
“The previous government’s budget was unrealistic,” Umar said. “Foreign exchange reserves have dropped to a dangerous level with cover less than two months of imports.”
The mini-budget was announced as Prime Minister Imran Khan headed to Saudi Arabia on Tuesday for a two-day visit, his first foreign journey as premier since winning a July national election. It also coincided with army chief General Qamar Javed Bajwa’s trip to Beijing this week as he looked to bolster ties and support for China’s Belt and Road trade route that runs through Pakistan. Khan’s administration is hoping to avoid an International Monetary Fund bailout by tapping up friendly countries for funds.
Umar estimated that Pakistan’s current-account deficit would continue to widen this year to as much as $21 billion (Dh77.1 billion). He made no reference to the IMF in his presentation to lawmakers or in a press briefing afterward. Umar told Bloomberg last month that Pakistan may need more than $12 billion to bridge the nation’s financial needs.
“They think they can avoid the IMF,” said Yousuf Nazar, a former Citigroup Inc banker and author of The Gathering Storm: Pakistan. “The budget includes no concrete measures to cut spending. Now it may be forced to do so if it goes to the IMF — I doubt if they can get $10 billion or so to meet the external financing gap.”
Pakistan allocated 750 billion rupees (Dh22.1 billion) on development spending for the current fiscal year, compared with 1 trillion rupees earmarked by the previous government’s pre-election budget. The allocation was higher than expected and led to a rally in cement and steel stocks, triggering the biggest gain in seven weeks on the nation’s benchmark KSE-100 Index.
The South Asian nation plans to generate 183 billion rupees by increasing taxes on luxury cars and imported food items. Pakistan also ended taxes on raw material imports for export industries to make them competitive to regional countries, including Bangladesh.
