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IMF predicts Pakistan’s defense budget to be Rs2.152tr

The International Monetary Fund, in its assessment of Pakistan’s economic plan, has estimated the country’s defense budget for the upcoming fiscal year 2024-25 (FY25) to be Rs 2.152 trillion.

This marks a 19.29% increase from the Rs 1.804 trillion allotted for the current fiscal year. The projections were included in the second and final review documents of the Stand-By Arrangement. Pakistan recently concluded a nine-month $3 billion program, which prevented a sovereign default, though Prime Minister Shehbaz Sharif’s administration emphasizes the necessity of a new, more extended program.

The IMF reports that the short-term program designed to tackle both internal and external imbalances has shown promising outcomes. These include moderate economic expansion, enhanced fiscal stability, and bolstered foreign currency reserves. However, challenges persist, notably high inflation, anticipated to hit approximately 20% by June 2024. The IMF advises maintaining a stringent monetary policy to curb inflation and fortify the financial sector further.

In the fiscal year 2025, Pakistan is estimated to allocate 1.72% of its GDP to defense spending. The IMF foresees Pakistan’s nominal GDP climbing to Rs124.813 trillion in the upcoming fiscal year, marking an increase from Rs106.577 trillion in the current year.

Furthermore, the IMF predicts that Pakistan’s total current expenditure, encompassing federal and provincial spending, will surge by 15.09% to Rs22.037 trillion in FY25, compared to the budgeted Rs19.146 trillion for the ongoing fiscal period. Federal current expenditure is anticipated to increase by 14.8% to Rs16.712 trillion, constituting 13.3% of the GDP.

Interest payments are also forecasted to escalate by 13.7%, reaching Rs9.787 trillion in FY25, up from Rs8.602 trillion in the current fiscal year.

As for development expenditure and net lending, a 22.67% upsurge is expected to amount to Rs2.673 trillion in FY25, compared to Rs2.179 trillion in the present year.

The Public Sector Development Program is poised to grow by 22.86% to Rs2.590 trillion in the upcoming fiscal period. This includes a federal component of Rs890 billion and a provincial component of Rs1.700 trillion.

In its recent staff report, the IMF recognized Pakistan’s economic progress but cautioned about ongoing challenges, emphasizing exceptionally high downside risks.

Despite narrowly avoiding default last summer, Pakistan’s $350 billion economy has stabilized post-completion of the previous IMF program, witnessing a decrease in inflation from a peak of 38% in May to around 17% in April.

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