Daily Times

It’s a budget “as usual” at times “unusual.” This comes to mind when we see the budget for 2023. For the common man, it has many things, a wage increase, a promise from the government side that there will be no taxes and most importantly it’s a budget with an approach of further economic expansion in times of higher inflation. Pakistan’s economy has been grappling with significant challenges, including a high level of foreign debt. The country has traditionally relied on external borrowing to finance its development and budgetary needs. Pakistan’s external debt has been increasing in recent years. It includes both public and private external debt, such as government borrowings, commercial loans, and bonds. The growing external debt burden poses challenges in terms of debt servicing and repayment obligations.

The servicing of foreign debt, including interest payments and principal repayments, consumes a significant portion of Pakistan’s budgetary resources.

Debt servicing obligations can put pressure on the country’s fiscal position, diverting funds away from development expenditures and social welfare programs. This has been the story of Pakistan’s economy for the last many years. And the situation had got worst since March 2022. The oil subsidy given by the then government proved to be fatal and late decision-making about it by the current government made the situation worse. The pressure on the exchange rate negatively affected the value of the rupee and an endless depreciation of the rupee started.

Debt restructuring is not a solution in itself, but rather a tool to manage debt burdens.

Now coming back to the current budget, the government claimed that it has not implemented any new tax. The government has set a higher tax revenue target for the fiscal year 2023. The total outlay of the budget is 14.4 trillion rupees and the target of tax revenue is 9.2 trillion rupees. Interestingly no new tax measures have been introduced in the current budget. Although contrary to this the government has already increased the GST by one per cent in March 2023 from seventeen to eighteen per cent. Hence it does miss the chance to implement new taxes so that the tax base can be broadened.

The IMF’s ninth review has become a critical issue for Pakistan. It was due in October, but Pakistan failed to satisfy the IMF. almost eight months later, that tranche has not materialized as the Fund says Pakistan has been unable to meet important prerequisites. Pakistan’s efforts to unlock access to the already agreed USD 6.5 billion loan package are in a quagmire as the budget needs to satisfy the global lender to secure the release of more bailout money for the cash-strapped country.

Pakistan has rescheduled its debt repayments with bilateral creditors and commercial lenders in the past. Debt rescheduling involves negotiating new terms for debt repayments, including extended maturity periods, lower interest rates, or reduced principal amounts. Rescheduling agreements provide temporary relief and better align debt repayment obligations with a country’s economic capacity

In certain instances, Pakistan has also negotiated debt restructuring agreements with commercial lenders, such as banks and other financial institutions. These agreements involve modifying debt terms to provide relief and improve the country’s debt profile. Restructuring with commercial lenders can be complex and often requires negotiations to find mutually acceptable terms.

It’s important to note that debt restructuring is not a solution in itself, but rather a tool to manage debt burdens. It is typically undertaken as part of broader economic reforms, fiscal consolidation efforts, and policies aimed at enhancing debt sustainability. Sustainable economic growth, prudent fiscal management, and continued efforts to attract investment and boost exports are crucial for Pakistan to address its debt challenges effectively

In these circumstances, it looks like the current budget is nothing but a stop-gap arrangement. The political uncertainty cannot be settled unless and until a new government is there. And the new government must change the budgetary targets. The new IMF deal will be the target of the new government. For the people of Pakistan, the message is loud and clear, IMF is pivotal. Survival without IMF will be bumpy and hard. There is a fair chance that Pakistan may face a situation like Sirilanka, in case the important decisions are not taken in time.

The writer is faculty member at GC University Lahore and can be reached at raja_4_92@live.com.