Facing tough choices, Pakistan looks to balance growth and expenses in budget 2022-23 today

Finance Minister Miftah Ismail has his work cut out. The former Board of Investment (BOI) chairman, who in mid-April took over what is arguably the country's toughest job at the moment, will not only look to curtail expenses, but also at ways to keep economic growth going without annoying its most important lender — the International Monetary Fund (IMF).

Keeping growth going has remained Pakistan's issue — at high rates, expenses have spiralled out of control. Its foreign exchange reserves have declined to an alarming level, and lending from the IMF has become more crucial.

The minister will have on his mind the Washington-based lender that has not only asked for heavy taxation measures, but also triggered the removal of energy subsidies that prompted the government to increase prices of petroleum products — twice within two weeks, effectively taking the hike to 40%. Power tariffs were increased as a follow-up as well.

The measures have induced a massive increase in prices of other commodities, raising expectations of higher inflation in coming months as well as a hike in interest rate by the central bank in its next monetary policy announcement on July 7.

Follow Business Recorder for regular updates on the Budget for 2022-2023

For pre-budget coverage, click here: Business Recorder's pre-budget coverage

Some important indicators to keep in mind include:

Inflation

Pakistan's average inflation in 11 months of the outgoing fiscal year (FY22) has moved to 11.29%. The previous government set a target of 8%. This has already prompted the State Bank of Pakistan (SBP) to hike interest rates 5 times since September 2021, taking the key policy rate to 13.75%.

Import cover

Foreign exchange reserves have dropped to a critical level of $9.23 billion at a time when imports in May alone clocked in at over $6.6 billion, putting import cover at less than 1.5 months.

Foreign funding

Pakistan will look to shore up its reserves if Miftah's recent statements are to give a sense of direction. The finance minister has said that the country wants to increase its foreign exchange reserves by another $8 billion, and has $33 billion as a requirement separately — $12 billion as current account deficit and another $21 billion as foreign debt repayment.

Domestic expenses

Apart from defence expenditure, outlay for the federal development budget of Rs800 billion for 2022-23 is likely to be announced. The National Economic Council (NEC) has decided that 60% of the development budget should be spent on ongoing projects and 40% on new endeavours.

Salary increase for government employees is also on the cards with Miftah categorically saying that in times of high inflation they need to be compensated as well.

Also read: