Pakistan’s new government on Friday unveiled a budget for the coming financial year that aims to restore broken ties with the IMF and stave off a political challenge from ousted prime minister Imran Khan.
The government of prime minister Shehbaz Sharif, who took over in April after Khan was removed in a no-confidence vote, said it planned to increase spending but still cut the fiscal deficit in the year starting July 1. The new adminstration has already raised fuel prices and said it would increase taxes by about 17 per cent year-on-year, while cracking down on tax evasion.
“In the last three years and three-quarters, [Imran Khan’s] incompetent team brought our beloved country to the brink of destruction,” finance minister Miftah Ismail said in his budget speech. “The present government has very little time. We have decided that all changes should be undertaken for the benefit of the economy and our country.”
Ismail said the government planned to spend Rs9.5tn in the coming year, up about 12 per cent from the current financial year, and cut the fiscal deficit to 4.9 per cent of gross domestic product from a forecast 8.6 per cent for the current year.
Arguing that previous Pakistani governments “give priority to the elite”, he increased taxes on real estate transfers and import of luxury cars while offering relief to small business people and others by raising the minimum income tax threshold.
In the weeks since taking power, Sharif’s coalition government has juggled dealing with an escalating economic crisis and political unrest.
It has already implemented a series of unpopular austerity measures, including sharply raising fuel prices, in order to revive a $6bn loan programme with the IMF. Analysts warn that without foreign currency transfers, Pakistan could follow nearby Sri Lanka in defaulting.
The austerity measures have been seized on by opponents, with Khan — who alleges Sharif conspired with foreign powers to oust him — leading rallies and protests across the country in order to push for early elections.
“Balancing the books was already difficult. But now it’s going to be much more difficult,” said Ayaz Amir, former member of parliament and TV commentator. “This [next year] is going to be a very difficult exercise.”
Pakistan’s IMF package remains in effect suspended over the country’s failure to meet targets for its fiscal deficit and current account deficit for the current financial year.
Sharif recently raised domestic oil prices by about a third in response to IMF demands, while officials have told the Financial Times that his government also plans to raise electricity and domestic gas prices by around 50 per cent each during the coming year.
These steps are meant to facilitate disbursement of the next tranche of the IMF loan. But analysts warn that they could prove politically costly for Sharif ahead of national elections that are due no later than the summer of 2023.
“This budget will push us all to the stone age,” said Chaman Khan, a taxi driver in Islamabad. “I can foresee many people closing their bank accounts because there will be nothing to save.”