Muneeb ur Rehman

The caretaker government's fiscal performance is remarkable in terms of achieving the revenue targets. Nonetheless, the upcoming government will have to face fiscal challenges in the form of high debt repayments to the domestic banks, sluggish growth, and escalating amounts of current expenditures. Talking to WealthPK, Asim Ahmed, former finance secretary and chairman of FBR, says challenges remain owing to the fundamental issues in the fiscal system. In its monthly economic update and outlook for January 2024, the Finance Ministry reports that during the initial half of the current fiscal year 2023-24, notable pressure on expenditures is witnessed, primarily stemming from elevated markup payments. Despite a rise in revenue, inflation is projected to persist at approximately 27.5% to 28.5% in February 2024, gradually moderating to a range of 26.5% to 27.5% by the next month of 2024. The former finance secretary points out the flawed policy option of keeping the interest rates too high. "Maintaining a high-interest rate is typically beneficial for mitigating inflation arising from increased demand. However, the present inflationary conditions in Pakistan are rooted in the supply-side factors.

The imposition of 22% interest rate only compounds the challenges for the government, amplifying the burden of interest payments and exacerbating the overall economic difficulties." Asim Ahmed adds that despite attaining the set revenue targets, persistent disparity between revenues and expenditures remains a longstanding characteristic of the country's fiscal structure. According to the data from the State Bank of Pakistan, the government borrowed Rs3.99 trillion from July 1 to January 19 in the current fiscal year, marking a 185% increase compared to Rs1.398 trillion borrowed during the corresponding period of the previous year. Discussing the possible measures that the newly-elected government could seek, he underscores the importance of renegotiation the interest rate with the International Monetary Fund (IMF). "The interest rate needs to be brought down to below 10% after consultation with the IMF, which has prescribed the government to keep it high. The low-interest rate would not only reduce interest payments but also support the growth rate through the investment channel." In a nutshell, meeting the revenue targets is a good sign for the economy. However, challenges remain for the next government.

inpCredit: INP-WealthPk