Islamabad, Apr 8 (PTI) The IMF has projected Pakistan's fiscal adjustment at a staggering Rs 1.7 trillion (USD 11 billion) in the next two fiscal years, aiming to contain a highly unsustainable public debt at current levels, a route that could address structural economic issues but seems politically unpopular, according to a media report on Thursday.
In its Global Fiscal Monitor report, the International Monetary Fund (IMF) has given a glimpse of what the cash-trapped government led by Prime Minister Imran Khan must do to control the country's yawning public debt.
The Express Tribune reported that the IMF on Wednesday released the report from Washington, a day after Khan expressed his intention to again review the IMF programme.
Khan on Tuesday had said: 'We are going to speak to the IMF because we see disruptions ahead.
Just when our economy was recovering and all the indicators were positive, unfortunately, we will have to review the whole situation and our new Ehsaas programme (social safety and poverty alleviation programme).' The IMF executive board last month restored Pakistan's USD 6 billion (Rs 916 billion) loan programme that had remained suspended for over a year.
The IMF revived the programme only after Pakistan agreed to massively increase electricity prices, impose new taxes and give autonomy to the State Bank of Pakistan (SBP) and National Electric Power Regulatory Authority (Nepra) -- conditions that now seem unacceptable to the government.
The path given in the fiscal monitor may be slightly different from the IMF staff report for Pakistan's programme, which is expected to be released soon.
In the monitor, the IMF has projected a sharp increase in revenues but a gradual reduction in expenditures in two years to bring the public debt-to-gross domestic product ratio down to 77.7 per cent or Rs 43 trillion (USD 280 billion) by June 2023.
The ratio currently stands at 87.7 per cent, which the IMF wants to cut by 10 percentage points within two years.
This means that the public debt will be Rs 5.2 trillion (USD 34 billion) less than what it actually will be without the IMF reform programme.
The 87.7 per cent of debt-to-GDP ratio is not only unsustainable but is eating up over 40 per cent of the total budget in debt servicing.
The downward debt trajectory, if followed, will limit the government's ability to spend on creating jobs and enhance economic growth during its remaining tenure of slightly over two years. The government will complete its five-year term in July 2023.
Still, the debt pile that Prime Minister Khan will leave behind at the end of his five-year term will be equal to 77.7 per cent of the size of Pakistan’s economy, higher than the 72.5 per cent ratio at the end of Pakistan Muslim League-Nawaz (PML-N) government's tenure in 2018.
The PML-N had left behind public debt of Rs24.9 trillion, which as per IMF’s projection would be at Rs 43 trillion (USD 280 billion) by 2023, even after following a tight fiscal path.
If the government led by Pakistan Tehreek-e-Insaf (PTI) party deviates from this path, the burden will be higher by at least Rs 5.2 trillion (USD 34 billion).
Even at 78 per cent of GDP, the public debt will be higher than the limit set under the Act of Parliament.
Under the Fiscal Responsibility and Debt Limitation Act, Pakistan’s debt should not be more than 60 per cent of GDP.
For fiscal year 2021-22, the IMF has projected a debt-to-GDP ratio of 83.3 per cent. According to the report, Pakistan’s budget deficit -- the gap between expenditures and revenues -- will be 7.1 per cent of GDP in the current fiscal year.
The global lender has estimated the budget deficit at 5.5 per cent of GDP for the next fiscal year, which means that the government will have to introduce over Rs 830 billion worth of fiscal adjustments.
For fiscal year 2022-23, the IMF has projected only a 3.9 per cent budget deficit, which will be the last year of the PTI government.
The IMF has also projected primary balance for the next two years, which is calculated by excluding interest payments.
In its projections, the IMF has shown the primary deficit at 1 per cent of GDP for the current fiscal year, a surplus of 0.4 per cent for the next fiscal year and 1.6 per cent for the year after. Revenues have been calculated at 15.8 per cent of GDP for the current fiscal year.
For the next fiscal year, the IMF report shows the revenue-to-GDP ratio at 17 per cent. This means the government will have to introduce a minimum Rs 625 billion (USD 4 billion) worth of new taxes.
Expenditures for the current fiscal year are estimated at 22.9 per cent of GDP, which for the next fiscal year are projected at 22.5 per cent -- a consolidation of only 0.4 per cent.
In total, the fiscal consolidation for the next year is equal to 1.6 per cent of the GDP.
If the government follows this path, the debt-to-GDP ratio will be 83.3 per cent by the end of next fiscal year.
For fiscal year 2022-23, the IMF has projected revenues at 17.5 per cent of GDP, requiring further revenue efforts of about half a percentage point.
The IMF has estimated that expenditures will remain at 21.4 per cent of GDP in the last year of the PTI government.
Total fiscal adjustment for the last year of the government is projected at 1.6 per cent of GDP, which will largely come from the expenditure side.
In this scenario, the IMF has projected that Pakistan’s debt-to-GDP ratio will come down to 77.7 per cent by June 2023. PTI SH IND AKJ IND