The federal government expects to miss its budget deficit target, largely due to an increase in spending owing to the military operation against the Taliban, announced Finance Minister Ishaq Dar at a press conference on Monday.
“Due to increasing financial requirements to implement the National Action Plan against terrorism and rehabilitation costs of Internally Displaced Persons (IDPs), the budget deficit in the current fiscal year may remain above the target of 4.9% of GDP,” said Dar. The deficit is expected to miss its target despite the fact that the government ended the first six months of fiscal 2015 within its target deficit limit of Rs696 billion, or 2.4% of the total size of the economy.
The minister was clearly irked by the results of the recently concluded Third Donors Conference, in which the US government did not announce the level of assistance that Dar had been expecting. “Pakistan will not beg from other countries for financial assistance. We will represent our case in a graceful and respectable manner,” said Dar.
The government of Pakistan believes it is fighting the war against the Taliban not just for itself, but also on behalf of Western countries, especially the United States. Dar did not name the US directly, but hinted that other countries should also recognise that this was also “their war”, going on to note that the West should be satisfied with the launch of the operation against the Taliban sanctuaries in North Waziristan.
The government has been asking for Rs75 billion to assist with the return and rehabilitation of IDPs and Rs35 billion to create a Counter Terrorism Force. When asked directly about relations with the US, Dar stated that Pakistan has cordial relations with both the US and China, in what appears to be a cryptic message to Washington that if they do not provide the promised aid, Islamabad will turn to Beijing.
Nonetheless, the minister said that he expects US Secretary of State John Kerry to acknowledge Pakistan’s sacrifices in the war against terrorism. Kerry is expected to visit Islamabad this week and Dar said that he expects the US to remain committed to releasing $532 million in aid to Pakistan, though he acknowledged that the United States Congress has yet to approve the funds. Dar also blamed India for creating problems along the border ahead of Kerry’s visit.
The finance minister made two seemingly contradictory claims on Monday. He said that the government would not sacrifice its commitment to the IDPs to meet the budget deficit target, but also said that the government would not seek to renegotiate the target in talks with the International Monetary Fund, due to be held by the end of this month, as part of the sixth review of Pakistan’s economic progress during the latest IMF bailout.
He also said that while the floods and military operations would affect economic growth, the economy is still expected to grow at close to this year’s target of 5.1%. The minister also reiterated the government’s commitment to meeting the deficit target of 4% of GDP by end of its third year in office.
Dar said the government has achieved end-December targets of Net International Reserves, Net Domestic Assets and reduction in government borrowing that had been agreed with the IMF for the sixth review of the economy. He said the sixth review talks are tentatively scheduled for last week of this month, which will either take place in Istanbul or Abu Dhabi.
He said it was for the first time that Pakistan has successfully completed five reviews of any IMF programme and achieved targets of the sixth review that will help its successful implementation.
Pakistan’s economic indicators have come in positive recently. The country received $9 billion remittances in first six months of fiscal 2015. Foreign direct investment in the first five months stood at $422.8 million. Foreign exchange reserves stood at $15.059 billion, including $10.364 billion held by the State Bank of Pakistan. However, growth in large scale manufacturing was slowing down.
Published in The Express Tribune, January 13th, 2015.