All eyes are on Prime Minister Shehbaz Sharif's government. As it prepares to publish its maiden budget. As the country races against the clock to resume disbursements under an IMF loan package worth $6 billion.
Today, the administration will submit the budget for the fiscal year 2022-23 in Parliament. With an emphasis on fiscal austerity to keep the deficit under control. Miftah Ismail, the Minister of Finance, will present it before the National Assembly at 4 p.m.
Despite official promises that the budget will restore economic stability to Pakistan. The downside risk is difficult to overlook. Independent analysts have begun to estimate inflation of up to 20% over the next 12 months. At least in many critical areas, in the run-up to Pakistan's new fiscal year, which begins next month (July). This is a huge jump from the predicted inflation rate of more than 13% in the fiscal year that ends this month.
A recent price hike of roughly one-third in domestic gasoline costs. A 45 percent increase in gas tariffs, and a 40 percent to 50 percent increase in the cost of electricity. All contribute to the anticipated increase.
Pakistan's increasingly costly energy mix will compel middle and low-income households. To squeeze their belts like never before. The consequences show that there are increasingly expensive critical services. Healthcare and education are only two key aspects in the lives of any middle-class household. Pakistanis are set to go through one of the most difficult periods in their history. And no amount of sugarcoating will help.
The high price of resuming normalized ties with the IMF after such distasteful steps. May appear to some to be an unpalatable pill to chew. However, it is an unavoidable bitter pill that Pakistan must chew. To avoid economic catastrophe in the short term. In comparison to the harsh measures likely to be seen in millions of households. The next IMF payout of $1 billion appears far too small. The importance of a restored relationship with the Washington-based lender. So, will come from Islamabad's ability to effectively tap other sources of financing.
On Thursday, finance minister Miftah Ismail used his pre-budget news conference. To announce that Pakistan's existing foreign currency reserves will likely expand. By approximately 25% to US$12 billion in the next few days. Thanks to a US$2.4 billion Chinese loan. However, Pakistan will face two recurring issues in the budget. Fulfilling tax collection targets and closing the gap between exports and imports. to avoid another balance of payments crisis. A repaired relationship with the IMF provides some guarantees. That Pakistan would effectively oversee major reforms that will make a difference on both counts. Leading a government that isn't far from the next elections doesn't benefit Prime Minister Shehbaz Sharif.
In the presence of high-interest rates. Pakistan's economic misery would almost certainly persist, if not worsen. Many independent economists believe that if inflation continues to rise. Pakistan's central bank will automatically boost interest rates even higher.
Meanwhile, Pakistan's political pressure will continue to mount in the foreseeable future. Jeopardizing the country's economic progress. The country's overall mood will likely remain on the boil. As former Prime Minister Imran Khan continues to call for legislative elections ahead of summer 2023. Even if the Sharif government lasts till next year. Khan's actions would make it less stable, which will affect the economy.
When finance minister Miftah Ismail speaks in parliament on Friday to propose the budget. He may take solace in the fact that there will be no opposition members there. Despite a reasonably seamless delivery of the budget address. The path ahead shows to be more difficult than any in recent memory.