Gilani Seen Risking Record Pakistan Budget Gap as Election Looms
Pakistani Prime Minister Yousuf Raza Gilani may raise government salaries and cut taxes in an
election-year budget that risks widening the deficit to a record.
The steps may increase the shortfall to an unprecedented
level in the year ending June 30, 2013, according to Standard
Chartered Plc, that predicts a budget gap of more than 8 percent
of gross domestic product from between 7 percent and 8 percent
in the previous 12 months. United Bank Ltd. and Optimus Capital
Management Pvt. also forecast a record deficit.
A Pakistan general election due by February is adding
pressure on Gilani to counter growing public anger over
persistent power blackouts, the fastest inflation rate in Asia
and an insurgency on the Afghan border. Spending more to appease
voters risks further straining government finances, which have
relied on domestic borrowings after aid flows from the U.S. and
the International Monetary Fund dwindled.
“Financing the deficit remains the single biggest
challenge for policy makers,” said Sayem Ali, a Karachi-based
economist at Standard Chartered. “Indications are that the
government will need another bailout package from the IMF
sometime this year.”
The economy expanded 3.7 percent in the current fiscal year
to June, the government estimates. Foreign direct investment
fell 50 percent in April to an eight-year low. Finance Minister
Abdul Hafeez Shaikh is scheduled to present the budget tomorrow.
With street protests and factory shutdowns rising, Gilani
said this week the budget will have no new taxes, and that it
will outline steps to create 100,000 more jobs, and increase
cash handouts for the country’s poor.
‘Flirt With Danger’
Pakistan recorded its highest budget deficit of 8.8 percent
of GDP in the year ended June 1991, according to government data.
“If the government flirts with danger and is unable to
generate new income, the deficit will swell to a record level,”
said Khalid Iqbal Siddiqui, head of research at United Bank Ltd.
in Karachi, who estimates the shortfall will reach 8 percent in
the current fiscal year to June.
The country already has one of the world’s lowest tax-to-
GDP ratios, estimated at 8.6 percent in
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