IMF Wants Pakistan to Convert Primary Deficit into Surplus

The International Monetary Fund has focused mainly on Pakistan’s fiscal framework for 2023-24, with an emphasis on converting Pakistan’s primary deficit into a surplus under the $3 billion standby arrangement (SBA). According to a national daily, the IMF team appears unconcerned about the overall expanding fiscal deficit as debt servicing increases by Rs. 1 trillion for the current fiscal year. The IMF expects debt repayments to climb to Rs. 8.3 trillion by the end of June 2024. Pakistan has proposed a fiscal deficit of 6.5 percent of GDP, or Rs. 6.9 trillion for the current fiscal year. The federal government’s budget deficit was predicted to reach 7 percent of GDP or Rs. 7.5 trillion, while the provinces were expected to create a revenue surplus of Rs. 600 billion, limiting the country’s overall fiscal deficit to 6.5 percent of GDP. An expert said that managing Pakistan’s fiscal deficit is critical since the government’s borrowing needs are satisfied by printing new currency. Notably, deficit financing increases the government’s reliance on external resources by increasing the money supply in the economy and fueling inflation. Government borrowing continues to push out the private sector and harm growth, while a large deficit imposes a financial burden on future generations. To reduce huge fiscal deficits in Pakistan, debt re-profiling, expenditure reforms, and broad-based taxation are required. It is noteworthy that during the quarter that ended on 30 September 2023, subsidies and development spending were heavily slashed/postponed, allowing the caretaker government to reduce the overall deficit while also meeting the primary surplus objective of the IMF.