Pakistan’s proposed budget for fiscal year 2024-25 has set Rs. 5.685 trillion, a little over $20.3 billion, to be acquired through external financing for the repayment of foreign loans (Rs. 4.99 trillion) and short-term credits (Rs. 29.95 billion). The Finance Bill 2024, however, fails to provide any sources for this external financing. The total outlay of the budget is Rs. 18.9 trillion, 30 percent higher than the outgoing fiscal year, with Finance Minister Muhammad Aurangzeb sounding confident that Pakistan would meet its external debt obligations—so long as it can secure an Extended Fund Facility with the International Monetary Fund (IMF). In the past year, per the State Bank of Pakistan, Pakistan repaid $24.3 billion, including $3.9 billion for interest payments.
The IMF loan comes with significant preconditions, which are set to translate into higher taxes for an already-encumbered public increasingly disinterested in the government’s narrative of successfully averting default even as it continues to prop up subsidies for the elite and avoids taxing the retail and agriculture sectors. Local experts have described this as a “missed opportunity,” criticizing the government for continuing to squeeze the salaried class while ignoring untaxed and undertaxed sectors.
For now, the prevailing consensus is that the proposed budget can ensure Pakistan avoids default but falls far short of putting the economy on the path of sustainability. The country would continue to struggle to attract foreign direct investment, development aid, remittances and exports, especially if the government cannot ensure political instability or improve a perilous law and order situation. A weak institutional base and inability of successive governments to undertake long-term and broad-based reforms has made sustained economic growth difficult. Amidst this, Pakistan’s economy would remain a sore point for the state, putting it at risk of falling prey to any potential global financial hits.