Pakistan’s ambitious fiscal targets for 2024-25 budget amid IMF talks.

Pakistan’s coalition government is gearing up to unveil ambitious fiscal targets in the upcoming 2024-25 budget, aiming to bolster its case for a new bailout deal with the International Monetary Fund (IMF). The budget holds crucial significance as Pakistan engages in discussions with the IMF for a loan estimated between $6 billion to $8 billion to prevent an economic default.

While the country narrowly avoided default last summer with a short-term IMF bailout of $3 billion, its fiscal and external deficits have been reined in, albeit at the cost of a significant slowdown in growth, industrial activity, and soaring inflation rates. Despite these challenges, the government is targeting a growth rate of 3.6% for the upcoming year, compared to 2% this year.

Prime Minister Shehbaz Sharif has pledged tough reforms since his election, but faces mounting pressure due to high prices, unemployment, and limited job opportunities. Implementing IMF-prescribed measures, such as widening the tax base and cutting subsidies, poses a challenge for the coalition government, compounded by opposition from various sectors and the complexity of structural reforms.

The appointment of Muhammad Aurangzeb, former chief of Pakistan’s largest bank, HBL, as Finance Minister underscores the government’s commitment to tackling economic issues. However, previous finance ministers have been reluctant to address contentious issues like reducing subsidies and increasing tax revenues from sensitive sectors such as real estate and agriculture.

The budget will also outline targets for proceeds from privatization, signaling the government’s intent to sell stakes in state-owned enterprises, including the national airline. This move is expected to pave the way for further divestment in loss-making entities, particularly in the troubled power sector.

While the budget aims to address fiscal challenges and pave the way for economic recovery, navigating the demands of the IMF while balancing domestic interests remains a delicate task for the government. The outcome of the budget will not only shape Pakistan’s economic trajectory but also influence its relationship with international financial institutions and investors.