Pakistan News

IMF projects budget deficit at 7.1pc in FY21

IMF projects budget deficit at 7.1pc in FY21

ISLAMABAD: The International Monetary Fund on Wednesday projected Pakistan fiscal position to remain under pressure during current fiscal year with budget and primary deficit at 7.1pc and 1pc of GDP respectively and debt levels staying elevated at 87.7pc.

In one of its flagship publications – Fiscal Monitor – the IMF, however, forecast improving fiscal situation over the next few years. For example, it has estimated fiscal deficit for next year (FY22) at 5.5pc and going further down to 3.9pc in FY23. On the longer horizon, the IMF put the country’s fiscal deficit at 2.9pc of GDP by 2026.

The IMF forecast Pakistan’s general government gross debt to peak at 87.7pc of GDP – the highest in history – by end of current fiscal year and then start declining to 83.3pc and then gradually going down to 65.5pc by 2026.




Sees primary deficit at 1pc and gross debt at 87.7pc of GDP

The net debt-to-GDP ratio – after adjusting for repayments etc – was also estimated to hit a record 80.7pc in FY21 and then making a sharp reduction to 77.3pc in FY22 and 72.4pc in FY23. Net debt-to-GDP ratio is projected to keep falling to reach 61.6pc of GDP by 2026.

Likewise, it projected primary deficit turning positive 0.4pc of GDP in FY22 and then primary surplus reaching 1.6pc of GDP by 2023 and then staying flat in the same range until 2026.

The fiscal monitor also estimated Pakistan’s revenue-to-GDP ratio improving for 15.8pc of GDP this year to 17pc next fiscal year and then remain unchanged at 17.6pc of GDP over the next four years. The expenditure to GDP ratio is also projected to keep declining from 22.9pc during the current year to 22.5pc next year and then falling almost 0.4pc each year to touch 20.5pc of GDP by 2026.

The IMF advised that until the pandemic was brought under control globally, fiscal policy must remain flexible and supportive of health care systems, households, viable firms, and the economic recovery. The need and scope for support varies across economies, depending on the effect of the pandemic and the ability to access low-cost borrowing.

At the same time, the race to vaccinate against Covid-19 continues, but the pace of inoculations is widely different across countries, with access unavailable for many. Global vaccination is urgently needed. Global inoculation would pay for itself with stronger employment and economic activity, leading to increased tax revenues and sizable savings in fiscal support.

The fund noted that many governments in advanced economies were implementing sizable spending and revenue measures in 2021 (6pc of GDP, on average). Support in emerging market economies and especially in low-income developing countries has been smaller and front-loaded, with a large share of measures expiring. Fiscal support has prevented more severe economic contractions and larger job losses.

Meanwhile, such support, along with drops in revenues, has raised government deficits and debt to unprecedented levels across all country income groups. Average overall deficits as a share of GDP in 2020 reached 11.7pc for advanced economies, 9.8pc for emerging market economies, and 5.5pc for low-income developing countries.

The rise in deficits in advanced economies and several emerging market economies resulted from roughly equal increases in spending and declines in revenues, whereas in many emerging market economies and most low-income developing countries, it stemmed primarily from the collapse in revenues caused by the economic downturn.

Fiscal deficits in 2021 are projected to shrink in most countries as pandemic-related support expires or winds down, revenues recover somewhat, and the number of unemployment claims declines. Average public debt worldwide reached an unprecedented 97pc of GDP in 2020 and is projected to stabilize at around 99pc of GDP in 2021.

Published in Dawn, April 8th, 2021

Similar News
Recent News
Back to top