January 24, 2019 (MLN): The much anticipated mini budget announced by the Finance Minister Asad Umar comes with a tagline to boost a flagging economy. While the budget aims to focus on 3 key sectors, namely Small and Medium Organizations, Agriculture sector and Low-Income Housing Sector, the question still remains whether the second finance bill of the fiscal year truly addresses the issues of the country at large.
Many have termed the announcement of the budget as ‘another step forward’ with a broad focus on promoting economic activity and investment. But disappointingly, a report by EFG Hermes points out that the mini-budget does little to address Pakistan’s persistent macro issues, specifically the high twin deficits and dwindling reserves.
The mini-budget is more inclined towards relief measures rather than budgetary measures, as there were no signs of new revenue estimates, even though the widening fiscal deficit has been a key driver of current account deterioration.
Even though it is widely accepted that the stock market may get a boost of from specific measures, however, it shall only last for a brief moment as any positive sentiment will be quickly eclipsed by still-looming economic challenges.
In spite of indications by the Finance minister regarding a plan to get into IMF Program soon, the government’s attitude in this budget has made a quick IMF deal less likely, especially in a time when IMF is much needed to make a sustainable adjustment in the economy.
Pakistan has already consumed USD2 billion in Saudi Arabian deposits received in late 2018, which means that reserves are lower now than they were in October, when the first pledges were announced (SBP reserves were USD6.9bn on 11 January 2019), and current account consolidation has been limited despite PKR devaluation and 425bps of interest rate hikes in 2018.
“Further delays in securing a comprehensive reform and financing package, with IMF participation, increases the risks of a disorderly move in USD/PKR. Moreover, rising local interest rates mean that the stock market needs renewed foreign interest for a lasting recovery” the report said.
However, majority has perceived the measures contained in the budget positively, given the government’s intent to improve ease of doing business and address deep-rooted structural issues.
Copyright Mettis Link News
25592
