ISLAMABAD – Pakistan’s fiscal deficit will surge by up to 9% in the ongoing fiscal year, the country’s finance minister said on Friday, when his economy recovered from the fall of the coronavirus crisis.
Pakistan, which has reported 26,435 COVID-19 cases and 599 confirmed cases, has announced it will start revoking nationwide lockdowns starting Saturday in an effort to restart economic activity.
Fear of economic collapse is said to be the main reason behind the cessation of closure when the state curve, or infection rate, rises sharply.
“The expectation of the deficit that we had before coronavirus was 7.6%. Now, after coronavirus, we think the deficit will touch 8% plus and it might be 9%,” said Abdul Hafiz Shaikh, advisor to Pakistan’s Prime Minister on Finance and Revenue, which effectively the country’s finance minister.
In an interview with Reuters in his office in Islamabad, Shaikh said the South Asian economy affected by the coronavirus would also lose its tax revenue target which was recently revised down and agreed with the IMF, which gave the country three years, a $ 6 billion year bailout then.
Pakistan will collect 3.9 trillion Pakistani rupees ($ 24.54 billion) in tax, 19% below the revised target of down 4.8 trillion Pakistan rupees ($ 30.20 billion), he said.
The International Monetary Fund also gave Pakistan a $ 1.386 billion fast financing package last month to tackle the balance of payments problem amid the economic downturn from the virus.
The country’s economy is now projected to contract 1% to 1.5% in the current fiscal year, Shaikh added, formally strengthening the IMF’s previous estimates of the magnitude of the pandemic’s impact on the Pakistani economy.
Pakistan is targeting 2.4% growth in fiscal 2019-2020 because it is struggling to restructure its economy, which suffers from a current account deficit and fiscal deficit and the depletion of foreign reserves.
“Income was hit. Exports were hit. Remittances were hit, and, most importantly, our people suffered,” Shaikh said.
Analysts say support in terms of fast loans, aid and debt reduction from development partners, friendly countries, financial institutions and G20 countries is likely to create fiscal space for Pakistan to keep its economy afloat.
The de facto minister said Islamabad had applied for the debt relief offered by the G20 to more than 70 countries, adding that he would delay payment of around $ 1.8 billion for Pakistan for one year.
“The World Bank and ADB gave us special packages,” he said, saying that was a pleasant thing, adding that, “if creditors don’t knock on your door now, then you can use this period to try and divert the money into more pressure needs at home. “
The upcoming budget for fiscal 2020/2021 is a formidable task for Shaikh to be present in early June.
“The first objective is to prevent the corona from affecting our citizens too badly or affecting our economy too badly,” he said, adding he would do his best to try to secure maximum funds for giving cash to the poor. “We must try to keep our industry moving especially on the export side.”
Pakistan has introduced several packages to save business and industry, including more than one trillion Pakistani rupees ($ 6.31 billion) stimulus to help revive the economy affected by the corona virus and provide cash to nearly 12 million people.
Although no one knows how long the coronavirus crisis will last, Shaikh said his government would try to cut the fiscal deficit in the next budget as well as cut spending, which could be anywhere including defense.
“This is an ongoing discussion that is ongoing,” he said.
(Writing by Asif Shahzad; Editing by Chizu Nomiyama and Jonathan Oatis)
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