News Brief

Pakistan Economy Continues Downward Spiral As It Attempts Trade War With India; Fiscal Deficit At 28-Year High

Pakistan prime minister Imran Khan with Army chief of the country (Source: Twitter)

Exposing the perilous state of its economy, Pakistan’s budget deficit rose to 8.9 percent of gross domestic product (GDP) in the financial year that ended in June, reports Business Standard.

This is the county's highest budgetary deficit in almost three decades.

In July, the Islamic republic, in an attempt to avert a balance of payments crisis and to prevent its debt from spiralling out of control, entered in to a $6 billion bailout agreement with the International Monetary Fund (IMF). The deal was the twenty-second bailout package since Pakistan became a member of the IMF in 1950.

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Provisional figures released by the country's finance ministry estimated the fiscal deficit at 8.9 per cent of the nation’s gross domestic product in the fiscal year ending June 2019 compared with 6.6 per cent last fiscal. The government's target deficit was 5.6 per cent.

Revenue during the year ending June 2019 was pegged at 12.7 percent of GDP, representing a decline from the previous financial year’s 15.2 percent. Under the terms and conditions of the IMF bailout package, Pakistan must increase its government revenue by more than 40 per cent this fiscal year beginning July  2019.

The figures also showed government expenditure at 21.6 percent of GDP in the latest financial year, compared with 21.8 percent a year earlier.

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The IMF approved three-year $6 billion bailout package for cash-strapped Pakistan comes with tough conditions to address its balance of payment crisis and help the Islamic republic's ailing economy to return to a sustainable growth path.

The $6 billion financial aid included an immediate disbursement of $1 billion to help Pakistan address its balance of payment crisis. The organisation will review Pakistan's performance quarterly over 39 months, before releasing additional aid in future phases.

Among the structural reforms Pakistan has undertaken to carry out in return for the IMF support include improving tax collection by one-third, raising tax rates, cutting government spending and increasing gas and electricity prices.

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The steps are expected to decelerate the already abysmal growth rate with the spectre of inflation spike looming large. The middle-class voters, who form the core of Pakistan prime minister Imran Khan’s political base, are likely to bear the brunt of these moves.

As per IMF estimates, Pakistan’s economic growth is expected to further dwindle to 2.4 per cent in the coming financial year.

PM Khan made frenetic efforts to avoid going to IMF and secured more than $9 billion in financial aid packages from friendly countries like Saudi Arabia, United Arab Emirates and China. However, mounting economic headwinds forced the Pakistan government to turn to the IMF. Last month, Pakistan secured a bailout package of $3 billion from oil-rich Qatar.

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