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All eyes on budget 2022-23 as Pakistan struggles to revive economy

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  • Pakistan braces itself for budget 2022-23 to be presented before National Assembly at 4pm.
  • It will be presented by Finance Minister Miftah Ismail.
  • This is being dubbed by economists as “one of the toughest budgets in Pakistan’s history”.

ISLAMABAD: All eyes are on the Prime Minister Shehbaz Sharif-led government as it sets out to present its first budget while the country races against the clock to resume disbursements under a $6 billion International Monetary Fund (IMF) loan programme.

The government will present the budget for next fiscal year 2022-23 in Parliament today, with special focus on fiscal consolidation to contain a budget deficit.

Minister for Finance Miftah Ismail will present it before the National Assembly at 4pm. It is being dubbed by economists as “one of the toughest budgets in Pakistan’s history”.

Despite official claims that the budget will restore stability to Pakistan’s economic outlook, the downside risk is difficult to ignore.

In the run-up to Pakistan’s new fiscal year beginning next month (July), independent economists have begun to forecast inflation of up to 20% over the next 12 months, at least in many key areas. This is clearly a staggering increase from the expected inflation of more than 13% in the fiscal year ending this month.

The upcoming increase will be primarily driven by a recent price increase of about one-third in domestic fuel prices, a 45% increase in gas tariffs, and a 40% to 50% increase in the cost of electricity.

Together, Pakistan’s increasingly expensive energy mix will inevitably force middle and low-income households to tighten their belts as never before. The spillover is set to be felt in increasingly expensive essential services such as healthcare and education — just two key ingredients in the life of any mainstream family. Pakistanis are about to face one of the hardest times in recent history, and no amount of sugarcoating will help.

The heavy cost of a return to normalised relations with the IMF following such unpalatable measures may appear to some as a bitter pill not worth swallowing. However, it is the inevitable bitter pill that Pakistan must swallow to save it from short-term economic ruin. The next IMF disbursement of US $1 billion on its own seems far too modest by comparison to the painful measures about to be inflicted on millions of households. But the value of a restored relationship with the Washington-based lender will come through Islamabad’s heading successfully towards accessing other sources of loans. On Thursday, finance minister Miftah Ismail used his pre-budget news conference to announce an imminent increase likely in Pakistan’s existing foreign currency reserves by about 25 per cent to US$12 billion in the next few days, on the back of a Chinese loan of US$2.4 billion.

Yet, the budget will present Pakistan with two recurring challenges—the matter of meeting tax collection targets and narrowing the divide between exports and imports, to protect the country against another balance of payments crisis. On both of these counts, a restored relationship with the IMF provides a few assurances that Pakistan will successfully oversee sweeping reforms to make a difference. For prime minister Shehbaz Sharif, leading a government that is not too far from the next elections, hardly helps.

Already, the twin combinations of sharply rising inflation and energy shortages displayed in daily lives through the dreadful reality of frequent loadshedding have hardly helped to block official credentials from heading southwards.

In the coming months, Pakistan’s continuing economic challenges will likely deepen the pressure on the Sharif government to maintain recent curbs on imports, to narrow the international trade gap. This will inevitably become the outcome of a situation where Pakistan’s space to pump up its exports will remain limited. As long as oil prices stay high and there is no sign of them going down to more affordable levels, import limits will also be a hard problem to solve.

Pakistan’s economic pain will likely remain in place, and possibly even get aggravated, in the presence of high interest rates. Many independent economists say that if inflation keeps going up, the State Bank of Pakistan will be forced to raise its interest rates even more.

Meanwhile, Pakistan’s continuously rising political pressure for the foreseeable future is set to undermine the country’s economic journey. Former prime minister Imran Khan’s continuing clamour for parliamentary elections ahead of summer 2023, will likely keep the country’s overall atmosphere on the boil. Even if the Sharif government stays in place until next year, Khan’s actions will make it less likely that it will be stable, which will hurt the economy.

When finance minister Miftah Ismail rises in parliament on Friday to present the budget, he may well find comfort in delivering his speech uninterrupted in the absence of opposition members. Yet, beyond a relatively smooth delivery of the budget speech, the road ahead is set to be tougher than any seen ever before in recent times.

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Changes in the US dollar’s value are directly correlated with variations in gold prices.

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The price of 24-karat gold in Pakistan increased by Rs1500 on Thursday, reaching Rs231,000 per tola. This was another jump in the price of gold in the country.

Dealers reported a comparable surge in the price of 10 grams of 24-karat gold, which is currently trading at Rs198,045 after rising by Rs1285. In addition, the cost of ten grams of 22-karat gold increased significantly, trading at Rs 181,541.

These fluctuations are strongly correlated with shifts in the US dollar’s value, demonstrating the tight connection between gold prices and exchange rates. This emphasizes how local gold markets are impacted by variables related to the global economy.

At Rs2,580, the price of 24-karat silver remains steady right now. The price of gold increased significantly on a global scale as well, rising by $14 to $2,214 per ounce.

It’s critical to understand that changes in the worldwide market can have a substantial impact on gold prices in Pakistan throughout the day. The gold rates that are offered are obtained from reliable sources, mostly situated in Karachi and Multan.

It is recommended that individuals seek the advice of nearby gold merchants and jewellers for the most precise and current information regarding gold prices.

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Pakistan pledged to finish building the TAPI gas pipeline.

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The minister discussed the importance of the TAPI gas pipeline project for Pakistan’s energy needs during a meeting with Turkmenistan’s ambassador to Pakistan, Atadjan Movlamov.

The Minister was congratulated by Ambassador Movlamov on taking office and his commitment to the project was noted.

Dr. Musadik Malik thanked the ambassador for his kind words, acknowledged the support, and promised to maintain the two nations’ friendship. The intergovernmental commission and working group meetings for the project this year were briefed by Atadjan Movlamov.

He invited the Minister to attend the Turkmenistan Energy Forum, which would take place in Paris the following month.

TAPI undertaking
The project is for the construction of a 1,680-kilometer pipeline with a 56-inch diameter that can carry 3.2 billion cubic feet of gas per day (bcfd) from Turkmenistan through Afghanistan and Pakistan to the border between Pakistan and India.

According to the terms of the TAPI agreement, Afghanistan would receive its portion of 0.5 billion cubic feet of gas per day, while Pakistan and India will each receive 1.325 billion cubic feet of gas per day.

In order to carry out the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project, Pakistan and Turkmenistan inked a cooperative implementation plan in Islamabad on June 4.

Prime Minister Shehbaz Sharif and a delegation from Turkmenistan, led by Minister of Energy and Water Resources Daler Juma’a, were present at the ceremony.

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The price of gold is still rising in Pakistan.

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According to the All Sindh Sarafa Jewellers Association, the cost of 10 grams of 24 karat gold grew by Rs. 86 to Rs. 196,760 from Rs. 196,674, while the cost of 10 grams of 22 carat gold jumped to Rs. 180,363 from Rs. 180,284.

The price of silver per tola and ten grams stayed at Rs. 2,211.93 and Rs. 2,580, respectively.

According to the Association, the price of gold on the global market rose by $7 to $2,200 from $.2,193.

It is important to note that Pakistani and IMF personnel have agreed at the staff level on the second and final review conducted as part of Pakistan’s Stand-By arrangement.

The International Monetary Fund (IMF) and Pakistan have reached a staff-level agreement on the second and final review of Pakistan’s stabilization program, which is supported by the IMF’s US$3 billion (SDR2,250 million) SBA Agreement. This is according to the official statement released by a team led by Nathan Porter.

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