To make the upcoming budget — constrained by the stringent parameters set by the International Monetary Fund (IMF) — palatable for its special interest groups and the public, a desperate Prime Minister Shehbaz Sharif and his coalition government appear ready to go to great lengths to appease China. This strategy likely aims to secure concessions, payment deferments, and immediate assistance at the current critical juncture.

Beyond the media hype surrounding the revival of the China-Pakistan Economic Corridor (CPEC), Mr Sharif is working to secure a $15 billion rollover facility for five years and to persuade China to fund certain ‘big-ticket’ critical projects that Pakistan needs — but currently cannot afford — during his China visit last week. A businessman close to PML-N leadership shared this information in confidence.

“PML-N leaders aspire to attract hundreds of billions of dollars in investment to Pakistan over the next five years. If they succeed through diplomacy or luck, issues like poverty, unemployment, inefficiency, debt and trade gaps will start falling into place,” he asserted privately over the phone.

Commenting on the China visit, Gohar Eijaz, former minister of industries and commerce caretaker, noted, “The government is attempting to extend the repayment period of the independent power project (IPP) loans from China, which were set up under CPEC, for an additional five years. Additionally, they aim to kickstart CPEC phase two with a greater focus on business-to-business relationships.”

The government is scrambling to secure Beijing’s appeasement to cushion probable economic blows from the IMF

The absence of the prime minister and his economic team during the first week of June — a critical period for releasing the Economic Survey and announcing the budget — is difficult to justify based on available information.

According to ministerial sources in Islamabad, the federal budget, originally planned for June 7, will now be presented on June 12, following the release of the economic survey on June 11.

The budgets for both federal and provincial governments are usually presented in early June to allow sufficient time for the parliament and the four provincial assemblies to debate and pass them before the fiscal year ends on June 30 and the new financial year starts on July 1.

Despite the delay in the federal budget, other provinces seem intent on adhering to the tradition of timing their budget presentation after the federal budget. However, Khyber Pakhtunkhwa (KP), ruled by the opposition, broke the norm and announced its Rs1.7 trillion surplus budget on May 24, focusing on social protection, law and order and economic development.

Pakistan narrowly avoided default last year with the IMF’s assistance. The new government firmly believes that another longer, larger IMF programme is essential for continuing on the path to recovery. Securing this programme is crucial for earning credibility with bilateral and multilateral development partners. The ruling party, at the same time, has frequently mentioned the erosion of political capital resulting from the implementation of the IMF’s harsh conditions.

“Facing limited fiscal space and mounting IMF pressure to do more to contain public spending and mobilise more resources, Mr Sharif’s government is in a tight spot. They seem eager to seek help from whoever they can approach,” remarked an observer.

On the other hand, there is significant pressure from coalition partners and party colleagues to use the first budget to regain political capital by offering relief to people and businesses, heightening the government’s nervousness.

It’s common knowledge that the IMF has demanded further increases in energy rates to arrest mounting circular debt, cuts in development spending, and the broadening of the tax net to include retail/wholesale, real estate and agriculture sectors.

‘The government aspires to extend the repayment period of Chinese IPP loans for an additional five years and to kickstart CPEC phase two’

These sectors currently contribute only a minuscule fraction of their percentage GDP share to the national treasury. For example, agriculture, which accounts for 23 per cent of GDP, chips in barely 0.3pc of total taxes collected. Meeting these demands is critical to secure the 24th IMF programme.

However, these measures would inevitably result in higher living and business costs, potentially triggering a harsh public reaction that could potentially threaten the survival of the government, currently only a few months old.

A high-powered delegation led by the prime minister, comprising several ministers from key economic ministries, businessmen, and senior officials from the security establishment, visited China from June 4-8. Although the closing statement detailing gains from the tour was not released at the time of filing of this report, dozens of memorandums of understanding were signed, and several events involving the Chinese hierarchy and members of their private sector have been reported.

The primary goal of the visit, as declared by the ruling party, was to reassure the Chinese leadership of Pakistan’s unwavering commitment to removing all impediments and addressing concerns related to security, confidentiality and governance in the execution of planned and ongoing projects. The government also expressed its intent to advance the second phase of CPEC with renewed vigour and speed.

Senior officials in Islamabad acknowledged the government’s apparent nervousness for no obvious reason. While dismissing the notion that the prime minister’s visit to China was unexpected, they could not satisfactorily explain its timing.

“A lot of preparatory work goes into planning high-profile visits to important destinations. In the case of China, a Joint Coordination Committee and group meetings were held. Sectors and companies for private sector participation were identified and facilitated with visas and other arrangements,” a senior source informed.

Dr Hassan Daud Butt, the former project director of CPEC, expressed optimism about the outcomes of the trip. He stated, “I hope and expect rich dividends for Pakistan and its people from our privileged relationship with the Asian giant. As for the recent trip, the key will again be how effectively we follow up on the commitments made and our ability to implement a system that ensures the fulfilment of these deliverables.”

Some economists, however, dismissed the government’s priorities, citing an inherently flawed system incapable of serving the greater good.

Published in Dawn, The Business and Finance Weekly, June 10th, 2024