(Bloomberg) -- Pakistan’s annual budget is a chance for Prime Minister Imran Khan to revisit his government’s spending priorities to help an economy assailed by one crisis after another.
The spending plan for the year starting July 1, due to be presented in Parliament Friday, will be a tough balancing act of reviving economic growth without depleting the coffers.
A year after winning a $6 billion International Monetary Fund loan to fend off a balance-of-payments crisis, Khan found himself seeking debt relief and another loan to fight the fallout of Covid-19. A locust-invasion that threatens 40% of the nation’s major crops came as an added challenge for the economy where half of the workforce depends on agriculture for a livelihood.
The hit to business activity from the virus has already pushed the economy to its first annual contraction in 68 years. The magnitude of economic losses will depend on the intensity and duration of Covid-19, the finance ministry said in its annual economic report released Thursday.
Here’s a look at what to watch in Khan’s budget:
Growth, Deficit
- Khan’s government is expected to target economic growth of around 2% next fiscal year after an estimated 0.4% contraction this year. The IMF expects a steeper 1.5% slump in the current fiscal period
- While measures to support the economy amid the virus pandemic will see the budget deficit widen to 9.2% of gross domestic product this year, the IMF’s loan program requires the government to narrow the shortfall. That will see steps to curtail the deficit
- “Given the uncertain economic outlook, we think risks are skewed towards it being significantly wider,” said Bilal Khan, senior economist at Standard Chartered (OTC:SCBFF) Plc in Dubai. “Progress on tax revenue increases may be limited”
Income, Spending
- The government hinted at a lenient tax regime, with Abdul Hafeez Shaikh, Khan’s finance adviser, saying the revenue target was “aspirational,” but it’s unlikely the administration will be aggressive about achieving it
- Instead the focus may be on raising income from non-tax streams, such as sale of state-owned assets
- Development expenditure -- the money spent on mega projects -- may be cut by to 630 billion rupees from 701 billion rupees allocated in the current year, according to a statement by the government’s planning commission
- Sectors that have potential to create jobs are likely to receive support, besides agriculture and public health, Prime Minister Khan said in a meeting on June 9
- Exporters may be offered incentives, while tax on raw materials imported is likely to be lowered, finance adviser Shaikh was cited as saying by the state-owned Associated Press of Pakistan
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