Pakistan's Ambitious Budget: Balancing Growth and Fiscal Prudence

Pakistan's coalition government will unveil its budget for the fiscal year to June 2025, aiming for ambitious fiscal targets to secure a new IMF bailout. Despite a recent economic uptick and falling inflation, growth remains constrained. The budget aligns with IMF requirements but faces challenges from coalition politics and public pressure.

Pakistan's coalition government will present on Wednesday its budget for the fiscal year to June 2025 that analysts expect to set ambitious fiscal targets as it looks to strengthen the case for a new bailout deal with the International Monetary Fund. The budget comes a day after the government said economic growth of 2.4% expected in the current year would miss a target of 3.5%, although revenues were up 30% over last year, and the fiscal and current account deficits were under control.

While Pakistan is expected to stick to fiscal prudence under a new IMF programme, growth is expected to stay constrained, said Abid Suleri of the Sustainable Development Policy Institute think tank. "Many of the measures taken to achieve fiscal sustainability will impact growth negatively, at least in the near future," he added.

Pakistan is in talks with the IMF for a loan estimated to range from $6 billion to $8 billion, as it seeks to avert a default for an economy growing at the slowest pace in the region. But a recent economic uptick, following stabilisation measures and falling inflation, as well as Monday's interest rate cut by the central bank, has made the government optimistic about prospects for growth.

The key policy rate could fall further this year and economic growth would continue to rise, Finance Minister Muhammad Aurangzeb, set to present his first budget, told reporters on Tuesday. Markets will watch the budget for a target for proceeds from privatisation, as Pakistan looks to make its first major sale in nearly two decades with the disposal of a stake in its national airline, kicking off a series of such moves.

But concerns remain about the government's ability to pursue reform, since it is vulnerable to the quirks of coalition politics in the face of rising public pressure against inflationary reform measures. Tapping under-taxed sectors such as agriculture and retail for additional revenues would prompt protests by farmers and small traders, while spending cuts in discretionary funds for MPs have already squeezed alliances and party loyalties.

The budget will be in line with IMF requirements, said economist Sakib Sherani, but cautioned, "However, the real problem will be adherence to fiscal austerity and prudence and containment of populism."

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)