Pakistan to target 2.3% growth in upcoming budget

ISLAMABAD: The government will target growth of 2.3% in fiscal year 2020-21 as it presents the budget for the upcoming fiscal year on Friday.

The budget is being passed amid a changing economic landscape that would depend mainly on the ability to control the coronavirus pandemic.

The GDP growth for 2020-21 is targeted at 2.3 percent with contributions from agriculture (2.9 percent), industry (0.1 percent) and services (2.8 percent), according to a planning commission working paper.

The forecast is higher than the 0.2% contraction in 2020-21 projected by the World Bank earlier in June. The global lender sees growth of negative 2.6% this fiscal year, while the government expects a 0.4% contraction.

The planning commission paper projects an average inflation rate of 6.5% in 2020-21, a trade deficit of 7.1% of GDP and a current account deficit of 1.6% of GDP. Exports and imports are projected to grow at 1.5% and 1.1%, respectively while inflation hit a decade-high of 14.56% in January.

A budget strategy paper in March published just before the pandemic hit the nation had projected growth of 3% in 2020-21. The paper foresaw spending of Rs7.6 trillion and a fiscal deficit of 6.9% of GDP – much lower than a current finance ministry projection of over 9% for 2019-20.

The government has earmarked Rs3.235 trillion for debt servicing and Rs1.402 trillion for defence — a rise of over 12% from last year. The paper projected public sector development spending of Rs700-900 billion rupees, compared with Rs650 billion in the new planning commission paper.

The National Economic Council (NEC) will review the estimates ahead of Friday’s budget and can make changes. Pakistan needs funds to avoid a balance of payments crisis after being hit hard by the coronavirus pandemic with about $10 billion in debt service costs in the coming financial year.