Islamabad [Pakistan], April 18 : The International Monetary Fund (IMF) on Wednesday projected the Pakistan's fiscal deficit, the gap between total resources and expenditures, for the current fiscal year at 7.4 per cent of GDP, Dawn reported on Thursday.
Projecting stagnant tax-to-GDP ratios over the next five years, the IMF estimated the figure, which is almost 1 per cent higher than 6.5 per cent target set by the federal government.
However, the fund anticipates a gradual decline in debt-to-GDP ratios and general government expenditures over the medium term. Also, the primary fiscal balance has been estimated to remain 0.4 to 0.5 per cent of GDP over the next five years, compared to a 0.9 per cent primary deficit in FY23.
The Pakistan government had estimated the overall fiscal deficit at PKR 6.9 trillion for the current fiscal year (6.53 per cent of GDP) on the anticipation that provinces would offer PKR 600 billion surplus to scale down the federal deficit otherwise estimated at PKR 7.5tr or 7.1 per cent of GDP. The IMF had previously projected the fiscal deficit at 7.6 per cent of GDP in October last year but has since revised it to 7.4 per cent, apparently based on the latest data shared by the government last month as part of a quarterly review.
In its fiscal monitor released on Wednesday as part of spring meetings of the IMF and the World Bank currently in progress in Washington, the fund forecast fiscal deficit declining 7.3 per cent of GDP in FY25--significantly higher than its 6.9 per cent forecast made in October last year. In the same direction, the IMF made upward adjustments in deficit estimates for Pakistan.
In doing so, the fund forecast a 5.8 percent fiscal deficit for FY26, followed by 5.1 per cent in FY27 and staying at 4.6 per cent in FY28 and FY29. In October last year, the IMF predicted Pakistan's fiscal deficit to be 6.9 per cent in FY25, 5.4 per cent in FY26, 4.4 per cent in FY27 and 4.4 per cent in FY28, Dawn reported.
The fiscal monitor for April 2024 also put primary budget surplus -- the difference between revenues and expenditures excluding interest payments -- at 0.4 per cent of GDP for FY24, followed by 0.5 per cent in FY25 and then staying stable at 0.4 per cent over the next three consecutive years and again at 0.5 per cent in FY29. In October last, the IMF had pitched a primary deficit for FY23 at 1.2 per cent of GDP compared to 0.5 per cent claimed by the government, which turned out to be a 0.9 per cent deficit, according to the latest statement of the IMF.
Referring to the revenue side, the IMF projected general government revenue to be 12.5 per cent of GDP for the current fiscal year ending June 30, up from 11.4 per cent last year. The fiscal monitor predicts general government revenue at 12.4 per cent for the next two fiscal years, FY25 and FY26, 12.3 per cent in the following two years, FY27 and FY28, and then back to 12.4 per cent in FY29.
The fund has not changed its revenue-to-GDP ratio estimates for all these years.
On the expenditure front, the fiscal monitor estimates general government expenditure at 19.9 per cent of GDP for FY24, significantly higher than 19.2 per cent in FY23. It then anticipates a gradual yearly decline over the medium term as debt servicing costs ease. The general expenditure will drop to 19.6 per cent in FY25), followed by 18.1 per cent in FY26, 17.5 per cent in FY27, 17 per cent in FY28 and 16.9 per cent in FY29. The fund has slightly revised its previous forecasts about the expenditure to GDP ratio by 0.2 to 0.3 per cent for these years.
Likewise, the IMF expects the gross government debt to ease down to 71.8 per cent of GDP at the end of the current fiscal year from 77.1 per cent last year. It anticipates a declining trend, but more is needed to eliminate vicious violations of the Fiscal Responsibility and Debt Limitation Act (FDRLA), which seeks to ensure that debt always remains below 60 per cent of GDP.
The IMF projects the gross government debt-to-GDP ratio to come down to 69.4 per cent next year, followed by 68.4 per cent in FY26 and 66.8 per cent in FY27. The debt is expected to drop to 64.8 per cent in FY28 and 63.1 per cent in FY29.
The fund noted that Pakistan would be among the economies with relatively high deficit levels and projected to undergo rapid fiscal consolidation over the medium term.