IMF focused on helping Pakistan turn primary deficit into surplus

IMF focused on helping Pakistan turn primary deficit into surplus

طوبیٰ Tooba 8 months ago 0 4


Logo of the IMF on a wall. — Reuters/File
Logo of the IMF on a wall. — Reuters/File
  • IMF not concerned by rising fiscal deficit due to debt servicing. 
  • Pakistan and IMF teams are currently holding technical-level talks.
  • Fund delegation is in Pakistan till Nov 16 to hold talks.

ISLAMABAD: The visiting International Monetary Fund (IMF) mission is focused on Pakistan’s fiscal framework for the ongoing financial year 2023-24 to turn the primary deficit into surplus under the $3 billion standby arrangement (SBA), reported The News on Monday.

The IMF is not concerned by the overall rising fiscal deficit due to the escalating debt servicing of Rs1 trillion for the current fiscal year. The government has planned to keep a lid on the debt servicing bill till Rs7.3 trillion but the IMF has forecast that it may balloon up to Rs8.3 trillion till the end of June 2024.

The primary surplus means that the deficit would be calculated by excluding debt servicing in the shape of principal and mark-up amounts requirement on domestic and foreign loans.

The IMF’s review mission is in Pakistan currently to complete the first review under the $3 billion loan programme and the possibility of releasing the second tranche of $700 million by the end of December 2023. The tranche would go through if both sides are able to strike a staff-level agreement at the end of the talks.

Pakistan and the IMF teams are currently holding technical-level talks while the policy-level talks will be held next week from November 13-16.

By deferring key expenditures on subsidies and development spending, the government has achieved the overall fiscal deficit within the planned limits of 0.9% of GDP for the current fiscal year. The primary surplus has been achieved for the first quarter with the adoption of deferment of certain expenditure heads.

The government has issued subsidies of just Rs2.5 billion in the first quarter out of the Rs1,064 billion allocated for the current fiscal year. For the Public Sector Development Programme (PSDP), the government has only utilised Rs41.9 billion out of the Rs950 billion.

The deferment shows that the government, with the decision, was able to restrict the overall deficit and was able to achieve the primary surplus targets to please the IMF.

“You should praise the government that it had converted primary deficit into surplus,” said a government official who spoke to The News on the condition of anonymity.

When reminded that it was achieved by cutting subsidies and choking development spending, the official said: “What else is the choice available to this caretaker government? The only possibility was to undertake better management of expenditures under the IMF programme to align primary deficit into surplus mode.”

Under the SBA, Pakistan has sought an overall fiscal deficit of 6.5% of the GDP, equivalent to Rs6.9 trillion for the current fiscal year. The federal government’s budget deficit was estimated at 7% of the GDP or Rs7.5 trillion but the provinces were supposed to generate a revenue surplus of Rs600 billion after which the country’s overall fiscal deficit was to be restricted at 6.5% of the GDP.

‘Managing fiscal is deficit key’ 

Former economic adviser to the Ministry of Finance Dr Khaqan Najeeb said that managing Pakistan’s fiscal deficit was key as the government has to print new currency to complete its borrowing need in order to meet the deficit.

This increases the money supply in the economy and creates inflationary pressures, he said, adding that deficit financing also increases the government’s dependence on external resources.

The economist said that the government’s borrowing plan crowds the private sector and hurts growth, adding that excessive deficit needs to increase the financial burden for future generations. He suggested that Pakistan needed to re-profile its debt, carry out expenditure reforms and introduce broad-based taxation measures to control the large fiscal deficits.

Dr Khaqan explained that the primary deficit is the amount the federal government needs to borrow to meet all expenses other than loan and interest payments. In the first quarter of FY2024, controlled expenditures on subsidy and development have helped show a lower fiscal deficit and a primary surplus.

The need for serious repair of Pakistan’s budget is highlighted by the fact that the net revenue receipts of the federal government, after transfers to the provincial governments only exceeded debt-servicing by Rs26 billion to meet all other expenses in the first quarter FY2024, he concluded.


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