A recent International Monetary Fund (IMF) report indicates that Pakistan is expected to fall short of its fiscal and debt reduction targets for the current fiscal year, with the budget deficit potentially reaching 8.3% of the nation’s GDP in the next fiscal year.
The Fiscal Monitor report reveals that Pakistan is unlikely to meet objectives related to budget deficit reduction, gross public debt, expenditures, and revenue increases for FY2022-23 and FY2023-24.
The report suggests that the budget deficit may widen to 6.8% by June this year, reflecting the government’s poor performance and raising questions about the effectiveness of the $6.5 billion Extended Fund Facility, aimed at fiscal consolidation and sustainable debt reduction. As a result, the budget deficit will grow to 8.3% of the GDP during FY2023-24.
The IMF had targeted Pakistan to achieve a primary budget surplus, indicating higher government revenues than expenditures, excluding interest payments. However, the Fiscal Monitor report predicts that Pakistan will have a primary budget deficit equal to at least 0.5% of the GDP during the current fiscal year. For FY2023-24, the IMF has projected a primary deficit of 0.4% of the GDP.
Pakistan’s revenue-to-GDP ratio is also expected to remain below earlier estimates, with the Federal Board of Revenue struggling to meet its annual target, already experiencing an Rs276 billion shortfall in just nine months of the fiscal year. Meanwhile, expenditures are predicted to grow to 19.1% of the GDP for the current fiscal year and 20.8% of the GDP for the next fiscal year.
As a result, Pakistan’s gross public debt is projected to reach 73.6% of the GDP by the end of this fiscal year, far above the IMF’s initial 65% target.
The Fiscal Monitor report states that debt dynamics have deteriorated in emerging market economies and low-income developing countries with significant foreign currency debt, as currency depreciation and rising interest rates combined with inflation.
Over the past year, the Pakistan rupee has devalued by more than 56%, while inflation reached a 50-year high of 35.4% in March.
