ISLAMABAD: The International Monetary Fund (IMF) on Wednesday forecast a gradual improvement in key financial indicators for Pakistan this year and till 2026.
In one of its major publications – the Financial Monitor – released on Wednesday, the IMF has pegged the government’s overall fiscal deficit at 6.2 per cent of GDP, the primary deficit at 0.4 per cent of GDP and nearly Rs. Estimated debt level at 81 percent.
This shows an improvement over the last financial year when the fiscal deficit stood at 7.1 per cent of GDP, primary deficit at 1.4 per cent of GDP and general government debt at 83.4 per cent. The fund anticipates that all major fiscal benchmarks will maintain a correction trend over the next five years, reflecting an overall better financial position.
For example, the fund has projected fiscal deficit for the next year (FY23), further reduced to 4.2 pc of GDP. However, it may be recalled earlier in April this year, the IMF had projected a fiscal deficit of 5.5pc for FY2022 and 3.9pc for FY2023. On the longer horizon, the fund projected that the country’s fiscal deficit would shrink to 3.2 pc of GDP by 2026, instead of the 2.9 pc of GDP previously estimated.
The IMF has estimated that Pakistan’s general government’s gross debt is coming in at 80.9 per cent of GDP during the current year, from a peak of 87.6 per cent of GDP in FY15 to 83.4 per cent of GDP last year. The following percentage was mainly due to an increase in the size of GDP. It projected to reduce gross general government debt to 75.8 per cent in the next year (FY23) and gradually reduce to 63.6 per cent of GDP by 2026.
The net debt to GDP ratio – after adjusting for repayments etc – was projected to shrink to 74.8 per cent of GDP this year after reaching a record 80 per cent of GDP last year. It is projected to maintain the declining trend over the next five years and reach 59.4 percent of GDP by 2026.
Similarly, it projected the primary account to be positive at 1.3 per cent of GDP in FY23 from a primary deficit of 0.4 per cent during the current year. The primary surplus will remain at 1.3 percent for the next two years and rise slightly to 1.4 percent of GDP in 2025 and 2026.
The Fiscal Monitor also estimated that Pakistan’s revenue-to-GDP ratio improved to 15.4 per cent of GDP during the current year from 14.5 per cent in the previous year. It projected the ratio of GDP to GDP for the next four years to remain unchanged at 16.6 per cent, instead of its earlier estimate of 17.6 per cent. This suggests that the IMF has limited expectations of the revenue mechanism’s low revenue performance.
On the other hand, the expenditure to GDP ratio is also projected to remain unchanged at 21.6 per cent of GDP during the current year as it was last year, but will continue to fall from 20.8 per cent of GDP over the next two years and gradually fall to 19.9 per cent. percentage will be of GDP by 2026
The IMF advised member states to show fiscal responsibility, even though much more needs to be done to support the economies. It said that amid the uncertain outlook and major challenges to public finances, governments need to act on multiple fronts and calibrate policies for the pandemic and economic growth and prospects.
It said fiscal support should be phased out gradually, and fiscal actions should be aimed at preventing risks to public finances and maintaining price and financial stability as well as prioritizing the transformation of the economy to make it smart, green and to be made more flexible. including. “This means more investment in physical capital, education and social safety nets, as well as more support for retraining and reallocating workers to new and better jobs”.
At the same time, it wanted governments to gradually increase tax revenues where necessary and improve the efficiency of spending. “These steps are more urgent in low-income developing countries, as revenues are expected to fall steadily, which could reduce the financing available to achieve the Sustainable Development Goals”.
Published in Dawn, October 14, 2021