IMF forecasts Pakistan's fiscal deficit at 7.4% of GDP, exceeding govt targets

The International Monetary Fund (IMF) has estimated Pakistan’s fiscal deficit, a gap in the income of a government as compared to its spending, at 7.4% of GDP for the current fiscal year 2023-24, exceeding almost 1% from the government’s target of 6.5%. 

This forecast comes amidst expectations of steady tax-to-GDP ratios over the next five years.

The IMF also predicts a gradual decrease in the debt-to-GDP ratios and general government expenditures over the medium term. The primary fiscal balance is expected to range between 0.4% and 0.5% of GDP annually, contrasting with last fiscal year's 0.9% deficit.

Initially, the government had projected the fiscal deficit at Rs6.9 trillion (6.53% of GDP), counting on a Rs 600 billion surplus from the provinces to reduce the deficit. However, the IMF had previously projected a higher deficit of 7.6% in October, which has been adjusted to 7.4% based on recent data.

During its spring meetings in Washington with the World Bank, the IMF released its fiscal monitor, which forecasts the fiscal deficit to decline to 7.3% of GDP in FY25, before gradually reducing to 5.8% in FY26, 5.1% in FY27, and stabilizing at 4.6% in the following years.

The IMF expects the primary budget surplus to be 0.4% of GDP in FY24, alternating between 0.4% and 0.5% over the following years. Revenue projections are also stable, with general government revenue anticipated at 12.5% of GDP for the current fiscal year, with minor fluctuations expected in the subsequent years.

On the expenditure side, the IMF estimates general government spending to be 19.9% of GDP for FY24, with a yearly decline forecasted as debt servicing costs decrease.

The IMF also forecasts a decrease in gross government debt, projecting it to drop from 77.1% of GDP last year to 71.8% by the end of the current fiscal year, and further to 63.1% by FY29. 

This trajectory is critical as it relates to the Fiscal Responsibility & Debt Limitation Act, which mandates that debt levels remain below 60% of GDP.