THERE couldn’t have been more challenging times than the present ones for preparing the national budget. The uncertainties related to elections and foreign funding required to cover the massive external account financing gap of about $25bn during the next financial year, amid deepening domestic political crises and unfavourable global economic circumstances, mean that our fiscal authorities would be budgeting this year on hope rather than tangibles.

Add to that the strong compulsion the PML-N-led government must be feeling to appease voters as the monthly price inflation hits another record high of 38pc days before Budget 2024, and it becomes obvious that the present rulers really have their work cut out for them before the next general polls.

It will not be surprising if the Shehbaz Sharif dispensation decides to give a ‘populist’ budget, including a large fiscal stimulus in the shape of development allocations to recoup some of its lost political capital. But this will be disastrous for an economy on the brink of default.

The government has already choked the economy to avoid a default as foreign funding dries up thanks to slumping relations with the IMF.

A populist — or what Finance Minister Ishaq Dar has described as a “welfare-oriented, pro-investment and business-friendly” — budget will be fraught with the risk of Pakistan being pushed deeper into economic depression and away from multilateral and bilateral lenders.

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With the country confronting stagflation — marked by flattening economic growth, soaring unemployment and spiking inflation — there has never been a more compelling case for a budget that focuses on fiscal, governance and structural reforms for longer-term economic recovery and sustainability.

Pakistan needs foreign financing, including loan rollovers, of more than $77bn to meet its external debt payments over the next three years. That will not be possible without the IMF on board. A fiscally irresponsible budget can make a new deal with the Fund even more difficult.

Domestic revenue resources also remain scarce — they are insufficient to cover debt-servicing costs, let alone finance development, defence, salaries, pensions, etc.

That makes the proposed fiscal stimulus and ‘relief’ to the common man, aimed at wooing back voters, impractical unless the government is prepared to throw all caution to the wind and resort to drastically increasing domestic borrowing and accumulating more debt, bringing greater misery to the public.

The upcoming budget will be more a test of the government’s resolve to stay the course and restructure the economy to steer it through uncertain conditions rather than provide temporary relief to people and businesses for short-term political gains.

Sadly, the indications so far are that the government is more likely to follow the fiscally imprudent path rather than follow through with the reforms it has promised its lenders to ensure longer-term economic stability.

Published in Dawn, June 6th, 2023