Pakistan Faces Looming Fiscal Crisis Amid Economic Challenges

Pakistan's government has identified multiple fiscal risks threatening economic stability, including growth stagnation, natural disasters, and underperforming state-owned entities. The finance ministry highlights the interplay of fiscal policies and the urgency for robust approaches to manage a significant fiscal deficit and mounting debt, amid an unstable political environment and impending IMF negotiations.

Pakistan's government, currently grappling with a cash-strapped economy, has highlighted nearly a dozen critical risks affecting next year's budget and its medium-term outlook. These range from stagnant economic growth to unexpected natural disasters and the consistent underperformance of state-owned entities.

In a detailed statement addressing fiscal risks submitted to Parliament, Finance Minister Muhammad Aurangzeb and Secretary Imdadullah Bosal emphasized that a combination of higher-than-expected interest rates, lower non-tax revenue collections, and increased subsidies have had significant impacts on fiscal variables across the board. The Dawn newspaper quoted, ''The combination of reduced revenues, increased expenditure on subsidies, and potential financing needs due to higher interest rates lead to substantial fiscal deficit and higher debt stock.''

Highlighting the dire economic situation, the ministry noted that achieving a record Rs 12.97 trillion revenue target for the next fiscal year is pivotal. However, political instability and coalition government issues are not deemed risks to fiscal and economic plans. The statement predicts a federal fiscal deficit of Rs 8.5 trillion, approximately 6.9% of GDP, accentuated by lower GDP growth and a depreciating rupee, which could inflate federal expenditures and debt. Climate change mitigation costs and poorly performing state-owned entities compounds the fiscal risks, urging the creation of a Natural Disaster Fund to alleviate these pressures. Pakistan faces severe economic crises, seeking IMF assistance to avert potential debt default.

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