It is about time for the government to announce the timeframe for the dissolution of assemblies and notify the date for the next general elections. It’s vital not just for democracy but also for much awaited economic turnaround in Pakistan.

The situation is dire currently. Growth, if at all, has reduced to a crawl. The stubborn galloping inflation will not be easy to tame. The fiscal deficit and piling debt repayments are already beyond threatening levels. The capital, commodity, property and currency market volatility has mounted extreme anxieties.

The government has managed to dodge the default to date, but the high level of future liabilities and the reluctance of donors mean that the danger of insolvency persists. The piecemeal relief steps for poor and key growth actors within the confines of the International Monetary Fund’s (IMF) stability conditions may fall short.

The challenges are too big and complex for any government to handle by itself. It needs the support of bilateral/multilateral development partners and the private sector to sail through choppy waters. The overseas partners have made their help conditional to the International Monetary Fund’s (IMF) clean chit, which the country has been unable to get.

To rope in investors and the moneyed class of Pakistan in economic revival efforts, the sentiments need a boost that no one expects the budget can provide on its own.

Pakistan’s ruling coalition may try to play the budget to regain the lost political capital

The IMF deal and the immediate disbursement of the next tranche of $1.2 billion of the $6.5bn programme can possibly change the economic dynamics instantly by unlocking the stuck-up promised resources and opening up more avenues of inflows. The programme, however, has been in limbo since October 2022, even with staff-level negotiations on the 9th quarterly review in February this year.

The key donor keeps changing the goalpost to justify its decision to delay/stop loan disbursement to Pakistan. Later last week, IMF asked to raise $6bn instead of $3bn to bridge the full financing gap for the current fiscal.

After waiting patiently for the IMF nod for three long months, Prime Minister Shahbaz Shareef reached out directly to MD IMF Kristalina Georgieva earlier last week. The high-level interaction was followed by a statement from IMF’s mission chief to Pakistan, Nathan Porter, who urged Pakistan’ for a peaceful way forward in line with the constitution instead of disclosing when and if the loan tranche is released for a programme that ends on 30th June.

Finance Minister Ishaq Dar and Minister of State on Finance Dr Ayesha Ghaus Pasha were not pleased with Mr Porter’s position and saw it as IMF intervention in Pakistan’s internal affairs. They did, however, repeat the government’s commitment to amicably complete the programme and honour IMF’s defined parameters in the next budget.

Without explicitly making a demand, the IMF’s mission chief probably wanted to drag the government’s attention to the future (elections 2023) from opposition bashing to curb uncertainty, which is costing the economy dearly. Why the government did not see through it is anybody’s guess.

All governments everywhere use the election year budget to please constituents. Pakistan’s ruling coalition government will also try to play the budget to regain the lost political capital. It will try to provide relief to commoners through income support, direct subsidies and by moderating direct tax demand on middle-income working families.

To fund people-friendly initiatives, with the IMF breathing heavily down its neck, the government has little choice but to mobilise additional resources from tried and tested avenues. To dilute the criticism, it might announce some measures to rope in the undertaxed, but there is little to indicate the seriousness of targeting undocumented tax evaders in the upcoming budget.

The election announcement could, however, set the ball rolling. It would shift the collective public attention from the past to the future. It may suppress uncertainty and provide some anchor for investors to hang their future plans. There is a remote possibility that the IMF might, in the end, disburse the tranche to further complement the positivity in the market.

Besides, in Pakistan, the elections have their own economy. If the past evidence is anything to go by, the bulk of private spending, running to hundreds of billion rupees, is in cash. Experts believe that huge chunks of hidden wealth also surface to finance electioneering. All these resources spin in the economy as it ultimately lands in the pockets of goods and service providers during the gigantic exercise.

Many members of the kitchen cabinet of Prime Minister Shahbaz were approached for comments. Their response was awaited till the filing of this report.

A senior source in the PM-N did not expect the revival of the IMF deal, especially after the tough talk by the finance ministry leaders who were already not popular in the circles of the Washington-based lender.

Dr Ali Cheema, a Lahore-based economist, expected more of the same. “If this budget follows history, it’ll be incremental. There may be some indirect tax measures, perhaps targeting compliant taxpayers. None of this will move us towards the path of sustainability. The big questions are how can the government get out of the debt trap and put the economy on a path of higher and sustainable growth?

“The key focus should be on tariff reform to address the anti-export bias in the policy, introduction of capital value taxation at the provincial level, greater documentation at the federal level through VAT and income tax compliance.

“In addition, the government needs to protect space for productive investment by rationalising unproductive expenditures, replacing untargeted subsidies with targeted subsidies, and eliminating fiscal black holes. To be effective, trade and governance reforms have to complement the budget if the government means business.”

Published in Dawn, The Business and Finance Weekly, June 5th, 2023