IMF forecasts Pakistan’s fiscal deficit to hit 7.6% of GDP, slightly above govt’s target

The International Monetary Fund (IMF) has forecasted Pakistan’s fiscal deficit for the current fiscal year at 7.6 percent of GDP, approximately 1.1 percent higher than the federal government’s target of 6.5 percent.

The IMF’s fiscal monitor, released during the annual meetings of the IMF and the World Bank in Marrakesh, Morocco, also predicts a gradual decline in Pakistan’s fiscal deficit in the coming years, reaching 6.9 percent of GDP in FY25, 5.4 percent in FY26, 4.4 percent in FY27, and 4.4 percent by FY28.

However, the actual trajectory of this decline is contingent on changing economic and political conditions, both globally and domestically, as well as the assumption that the next government will maintain fiscal consolidation efforts.

Pakistan had initially set the overall fiscal deficit for the current year at Rs6.9 trillion, equivalent to 6.5 percent of GDP, with the expectation that provinces would contribute a Rs600 billion surplus to reduce the federal deficit, initially estimated at Rs7.5 trillion or 7.1 percent of GDP.

Even when considering the government’s projected Rs600 billion cash surplus from provincial governments to offset the federal deficit, the IMF’s estimate still exceeds the government’s budgetary goal by about 0.6 percent.

The IMF’s projection is consistent with its previous estimate from July, which was established as part of a $3 billion Standby Arrangement (SBA) with the previous authorities for the nine months ending in March next year.

It’s worth noting that while the IMF and Pakistan’s authorities have differing assessments of the primary deficit (the gap between revenues and expenditures, excluding interest payments) for the last fiscal year ending in June 2023, they both agree on the primary balance for the current fiscal year.

The IMF also reports Pakistan’s gross government debt at 76.6 percent of GDP for FY23 and forecasts a decrease to 72.2 percent of GDP during the current fiscal year. Nevertheless, it remains significantly higher than the 60 percent limit set by the Fiscal Responsibility & Debt Limitation Act (FDRLA).

Similarly, the net government debt is projected to be 71.6 percent of GDP for FY23, declining to 68.3 percent during the current year and gradually reaching 61.8 percent of GDP by FY28.