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IMF sees tough fiscal path

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ISLAMABAD:

Pakistan will not have fiscal space to spur sluggish economic growth under an International Monetary Fund (IMF) program as the global lender contemplates a difficult fiscal path to contain an unsustainable public debt burden that is expected to be around 44 trillion rupees (minimum) by 2023.

The Fiscal Monitor report, released Wednesday by the IMF from Washington, forecasts a gradual increase in income and a reduction in spending over three years to bring the ratio of public debt to gross domestic product (GDP) to 78.3% or 44 rupees. 3 trillion.

The ratio currently stands at 87.2% or 36.3 trillion rupees, which is not only unsustainable, but swallows up a third of the total budget in debt service.

The downward debt trajectory, if followed, will limit the government’s ability to spend to create jobs and improve economic growth during the remaining period – almost three years – of the Pakistani administration Tehreek-e-Insaf (PTI) which will complete its five-year term in July 2023.

Yet the pile of debt Prime Minister Imran Khan will leave behind at the end of his five-year term will be 78.3% of the size of the Pakistani economy, greater than the gross public debt of 72.5% at the end of the Pakistan Muslim League. -Government of Nawaz (PML-N), according to the report.

The PML-N had left behind a public debt of Rs 24.9 trillion, which the IMF projected would be Rs 44.3 trillion (minimum) by 2023, even after following a fiscal path. tight. If the government deviates from this path, the burden will be greater.

In February of last year, Prime Minister Imran pledged to reduce the public debt to Rs 20 trillion. Even at 78% of GDP, the public debt will be above the limit set by an act of Parliament. Under the Fiscal Responsibility and Debt Limitation Act, Pakistan’s debt is not expected to exceed 60% of GDP.

For fiscal year 2021-2022, the IMF has projected a debt-to-GDP ratio of 82.1 percent.

The figures given in the IMF report are different from the official fiscal trajectory, suggesting that it will not be an easy task for the government to revive the failed IMF’s $ 6 billion loan program.

Pakistan’s budget deficit – the gap between spending and revenue – will be 6.7 percent of GDP for the current fiscal year, about half a percentage point lower than the approved target, according to the report. by Parliament.

The global lender has estimated the budget deficit at 5.2% of GDP for the next fiscal year and 4% for fiscal year 2022-23, which will be the last year of the PTI government.

IMF figures are lower than the government’s three-year targets, indicating the lender will want further fiscal consolidation.

The IMF has also projected the primary balance for the next five years, which is calculated excluding interest payments. He once again showed a primary surplus for the next fiscal year that can only be achieved by reducing the development budget or defense spending.

In its projections, the IMF posted a primary deficit of 0.4% of GDP for the current fiscal year and a surplus of 0.7% for the next fiscal year and 1.6% for the following year.

Revenues were calculated at 16.1% of GDP for the current fiscal year, slightly above the government’s budget target.

For the next fiscal year, the IMF report shows a revenue-to-GDP ratio of 17%, which is expected to rise to 17.7% in the government’s last year PTI. The IMF estimated that spending would remain at 22.8% of GDP in the current fiscal year, which would gradually decline to 21.7% in the last year of the PTI government and to 20.9% in 2025. These ratios are slightly lower than those of the Ministry of Finance. projections given in the medium-term budgetary framework.

Pakistan needs an annual economic growth of around 7% to create enough jobs to absorb the surge of young people. Any economic growth below this figure adds to unemployment and poverty. However, an Asian Development Bank (ADB) report says Pakistan cannot grow more than 3.8% on a sustainable basis without addressing structural issues first.

The IMF has forecast growth of 1% for this fiscal year and only 2% for next year.

The report says the budget deficit for the last fiscal year remained at 8% of GDP, which is lower than initial post-Covid-19 estimates.

“Pakistan’s deficit is estimated to have narrowed for its fiscal year which ended in June 2020 as Covid-19 only touched the fourth quarter and the ability to increase spending was limited,” said the IMF.

Although the government announced 1.2 trillion rupees in the coronavirus relief program, documents from the Ministry of Finance showed spending to be less than 300 billion rupees.

Posted in The Express Tribune on October 15, 2020.

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