Pakistan is facing significant financial challenges, including a nearly $4.5 billion gap in its external financing plan and a potential budget overshoot of about Rs1 trillion due to underestimated debt expenditures.
These issues arise from unrealistic budgetary estimates, which may pose problems during the first review of the International Monetary Fund (IMF) program scheduled for November 2023.
The concerns stem from the fact that, against the budget estimates of over $20 billion, there are doubts that at least $4.4 billion in foreign loans may not materialize. The Ministry of Finance acknowledged the low credit rating of Pakistan and the global environment of higher interest rates, making it difficult to secure nearly $3 billion in non-Chinese commercial loans.
Additionally, the $1.5 billion target from floating bonds appeared unlikely. To address these challenges, the government began exploring alternative means of external financing, such as increasing disbursements from multilateral creditors and raising funds through privatization.
Interim Finance Minister Dr. Shamshad Akhtar directed the finance ministry to review the plan in light of economic conditions. She questioned whether Pakistan could secure the budgeted $4.5 billion in commercial loans and Eurobonds. The government also considered increasing disbursements from multilateral and bilateral creditors.
While the budget had initially anticipated $6.2 billion inflows from multilateral and bilateral creditors for the fiscal year, it received only $293 million in July. However, the IMF had not yet disbursed any funds from the program. The slow progress in development activities due to interim governments in federating units and central bank regulations on third-party disbursements contributed to this situation.
The financial challenge extends to the budget itself, as the cost of interest payments is expected to exceed the budgeted figure by approximately Rs1 trillion.