Dawn: Minuscule tax revenues, mismanagement and overgenerous subsidies mean Pakistan is heading for a new financial crisis, say diplomats and analysts, with this week’s budget unlikely to offer any respite.
The budget deficit stood at 6.6 per cent of GDP last year, according to the central bank, the State Bank of Pakistan (SBP), which warned that government borrowing was crowding out the private sector from access to credit.
That reduces the prospects for economic growth in a country that is on the front line of the war against al Qaeda and where more than 5,000 people have been killed in bomb and gun attacks by insurgents since 2007.
External forecasts for the current fiscal year see the budget deficit rising to about seven per cent of GDP, while economists warn the government is running out of ways to fund it — and reluctant to embrace reform with polls looming.
Some see little alternative to a major financial crisis or a return to the IMF, which bailed out Pakistan with an $11.3 billion loan package in 2008 that stopped last November after Islamabad rejected strict reform demands.
“I think it’s possible they could have a real financial crisis by the middle of this year or the fall. I don’t think it’s a question of if, but when they go back to the IMF,” one Western diplomat said.