A Total Collapse: What To Make Of Pakistan's Recent $50 Billion Budget

Earlier this month, Pakistan announced its budget. The country is facing a significant budget deficit of 7.5 trillion rupees, which will be financed through borrowing. The government plans to borrow $17 billion from domestic banks and $8 billion from external sources.

Pakistan has been awaiting the completion of the ninth review of its IMF bailout package since November. This review would unlock over $1.1 billion in financial assistance. The agreement is set to expire on June 30, however.

The borrowing is primarily aimed at managing Pakistan's existing debt burden, as approximately half of the entire budget is allocated to debt servicing. This includes $22 billion for domestic debt and $3 billion for external debt.

China has previously pledged to assist Pakistan in addressing its economic crisis, especially given Pakistan's involvement in the $50 billion portion of the Belt and Road infrastructure initiative.

An anonymous government official has indicated that Islamabad anticipates China's support in rescheduling its debts to prevent a default, even in the absence of cooperation from the IMF, as reported by Asia Nikkei. Though there are no signs that China will agree to Pakistan's request for debt rescheduling.

Similar challenges in debt negotiations have been encountered by Sri Lanka, a neighboring country facing financial difficulties.

Following the budget announcement, Pakistani government officials have revealed that they are exploring options for rescheduling bilateral debts, which account for 37 per cent of Pakistan's external obligations. This puts the focus on China, as Pakistan's debt to China stands at $23 billion according to the IMF's country report for 2022.

Pakistan's limited fiscal capacity has significantly impacted its development expenditures. The federal development budget stands at 1.2 trillion rupees, approximately $4 billion, which falls considerably short of the country's requirements, particularly in the aftermath of the devastating floods experienced last year.

The floods resulted in extensive damage to physical infrastructure, estimated at around $14.9 billion, while economic losses amounted to approximately $15.2 billion, as reported by the Pakistan Economic Survey for the year 2022-23.

These staggering figures highlight the substantial challenges faced by Pakistan in addressing the reconstruction and recovery needs resulting from the floods.

Rather than offering a solution to Pakistan's economic crisis, the budget has revealed the government's reliance on extensive borrowing to manage its affairs.

While the outcome of negotiations with the IMF is yet to be determined, there is a growing belief that the budget has paved the way for seeking significant concessions from China. However, it remains uncertain what specific demands Beijing may make in exchange for such concessions.