Fiscal deficit challenge

To infuriate the IMF further, the cash-strapped government of PM Imran has announced a relief package for people

The budget deficit for the ongoing fiscal year is estimated, by the Ministry of Finance, to fall Rs318 billion short of the target, and is going to be in excess of Rs4.3 trillion — a new record. And this is despite the fact that the government has cut the development budget by Rs200 billion; slapped Rs360 billion worth of mini-budget; and collected Rs268 billion additional tax (in the first eight months of FY22) on higher imports and higher inflation.

While, under the IMF agreement, the government had to achieve an overall primary budget surplus of Rs25 billion, it has instead shown Rs665 billion deficit by June this year. It goes without saying that this breach of commitment with the international lender signals a tough time ahead — both for the rulers and the ruled. To infuriate the IMF further, the cash-strapped government of Prime Minister Imran Khan has announced a relief package for people across the board, besides promising that there would be no raise in power and gas tariffs and oil prices till the next budget.

So how does the government plan to plug the Rs4.3 trillion fiscal gap that is further broadened by the amount of the PM’s relief package? Well, the PM will either have to go back on his words and increase the utilities’ prices or find some specific areas to impose new taxes. There are however reports that while fresh loans are being sought both from foreign and domestic sources, further cut in development spending is being mulled. Whatever way the government goes about darning tbe huge fiscal hole, it is the masses who will have to bear the brunt eventually.

Moreover, the other deficit — the one of the current account — is equally worrisome. According to leading economist and former finance minister Dr Hafiz Pasha, the current account deficit for the full fiscal is estimated to touch a historic $20 billion. To add to that no other economic indicators — macro or micro — are anything to write home about. Unfortunately, at a time when the political class is required to enter into some kind of a ‘charter of economy’, a political tug of war in the country threatens to deteriorate the situation further.

Published in The Express Tribune, March 14^th, 2022.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.