ISLAMABAD: The International Monetary Fund (IMF) forecasted on Wednesday that Pakistan’s major fiscal indicators were “gradually improving” this year and would continue to do so until 2026, local media reported.
The global financial institution predicted this in one of its flagship publications, Fiscal Monitor, on Wednesday. It estimated the Pakistani government’s overall fiscal deficit at 6.2 percent of the gross domestic product (GDP), primary deficit at 0.4 percent of GDP and debt levels at about 81 percent of the GDP during fiscal year (FY) 2021-22.
The data showed improvement over the last fiscal year, when fiscal deficit stood at 7.1 percent of GDP, primary deficit was at 1.4 percent and the government debt at 83.4 percent.
The fund projected that all key fiscal benchmarks would keep improving over the next five years, showing better fiscal position.
“The fund estimated fiscal deficit for next year (FY23) declining further to 4.2 percent of GDP,” read a report in Dawn newspaper.
“On the longer horizon, the fund estimated the country’s fiscal deficit going down to 3.2pc of GDP by 2026, instead of 2.9pc of GDP it had projected earlier.”
The IMF, in April this year, had estimated 5.5 percent fiscal deficit for FY2022 and 3.9 percent for FY2023.
It predicted that Pakistan’s general government gross debt would come down to 80.9 percent of the GDP during the current year from the highest peak of 87.6 percent in FY20, followed by 83.4 percent of the GDP last year, mainly because of an increase in the size of GDP.
It forecast the gross general government debt would reduce to 75.8 percent next year (FY23) and scale down gradually to 63.6 percent of the GDP by 2026.
The net debt-to-GDP ratio — after adjusting for repayments etc – was also estimated to come down to 74.8 percent of the GDP this year, after hitting a record 80 percent last year. It is expected to maintain a declining trend over the next five years to reach 59.4 percent by 2026.
Likewise, according to the report, the IMF projected Pakistan’s primary account turning positive 1.3 percent of the GDP in FY23 from a primary deficit of 0.4 percent this year. The primary surplus would remain 1.3 percent for the next two years and slightly increase to 1.4 percent of the GDP in 2025 and 2026.
The Fiscal Monitor estimated Pakistan’s revenue-to-GDP ratio improving to 15.4 percent of the GDP during the current year, against 14.5 percent last year. It projected the revenue-to-GDP ratio to remain unchanged at 16.6 percent of the GDP for the next four years, instead of its earlier projection of 17.6 percent for the next four years.
It showed the IMF had limited expectations to lower revenue performance of the revenue machinery.
The expenditure-to-GDP ratio was projected to remain unchanged at 21.6 percent of the GDP this fiscal year as it stood last year, but it would keep declining from 20.8 percent over the next two years and gradually come down to 19.9 percent of the GDP by 2026.
The IMF advised member countries to show fiscal responsibility even though a lot more needed to be done to support economies. Amid the uncertain outlook and sizeable challenges to public finances, governments need to act on several fronts and calibrate policies to the COVID-19 pandemic and to economic developments and prospects, it said.
Fiscal support should be unwound gradually, and fiscal actions should aim at containing risks to public finances and preserving price and financial stability, while prioritizing transformation of the economy to make it smarter, greener, more resilient and inclusive.
“This means greater investment in physical capital, education, and social safety nets, as well as more support for retraining and reallocating workers to new and better jobs,” it said.
Simultaneously, the IMF wanted governments to gradually increase tax revenues where necessary and improve efficiency of spending.
“These steps are all the more urgent in low-income developing countries given the prospects for a persistent fall in revenues, which could reduce available financing for achieving the Sustainable Development Goals,” it said.
