IMF focused on helping Pakistan turn primary deficit into surplus

IMF logo on a wall.  - Reuters/File
IMF logo on a wall. – Reuters/File
  • The IMF is not worried about the rising fiscal deficit due to debt repayment.
  • Teams of Pakistan and IMF are currently holding technical level talks.
  • The fund delegation is in Pakistan till November 16 for talks.

ISLAMABAD: The International Monetary Fund (IMF) visit is focused on Pakistan’s fiscal framework for the ongoing financial year 2023-24 to convert the primary deficit into surplus under the $3 billion Standby Arrangement (SBA). news on Monday.

The IMF is not concerned about the overall fiscal deficit rising due to rising debt repayments of Rs 1 trillion for the current fiscal year. The government plans to keep the debt service bill limited to Rs 7.3 trillion, but the IMF has estimated it could rise to Rs 8.3 trillion by the end of June 2024.

Primary surplus means the deficit will be calculated excluding debt service as principal and mark-up amount required on domestic and foreign loans.

The IMF review mission is currently in Pakistan to complete the first review under the $3 billion loan program and is likely to release the second tranche of $700 million by the end of December 2023. If both the parties are able to reach a compromise then this installment will be completed. Staff-level agreement at the end of negotiations.

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

By postponing major expenditure on subsidies and development expenditure, the government has achieved overall fiscal deficit within the planned range of 0.9% of GDP for the current financial year. Primary surplus for the first quarter has been achieved with the adoption of moratorium on some expenditure items.

The government has released only Rs 2.5 billion of subsidies in the first quarter out of the Rs 1,064 billion allocated for the current financial year. For the Public Sector Development Program (PSDP), the government has utilized only Rs 41.9 billion out of Rs 950 billion.

The postponement shows that the government, with the decision, was able to limit the overall deficit and achieve the primary surplus target to please the IMF.

“You should praise the government for turning the primary deficit into a surplus,” said a government official speaking. news On condition of anonymity.

When the official was reminded that this was achieved by cutting subsidies and freezing development spending, he said: “What other option is available to this caretaker government? The only possibility was to better manage expenditure under the IMF program to align the primary deficit into a surplus mode.

Under the SBA, Pakistan has sought fiscal deficit of 6.5% of GDP, equivalent to Rs 6.9 trillion, for the current fiscal year. The federal government’s budget deficit was estimated at 7% of GDP or Rs 7.5 trillion, but the provinces were to generate a revenue surplus of Rs 600 billion, after which the country’s overall fiscal deficit was to be capped at 6.5% of GDP.

‘Fiscal management key to deficit’

Dr. Khaqan Najib, former economic advisor to the Finance Ministry, said that it is important to manage Pakistan’s fiscal deficit because to meet the deficit the government will have to print new currency to meet its borrowing needs.

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

The economist said the government’s borrowing plan stifles the private sector and hurts growth, adding that excessive deficits will increase the financial burden on future generations. He suggested that Pakistan needed to restructure its debt, undertake expenditure reforms and implement broad-based taxation measures to control the large fiscal deficit.

Dr Khaqan explained that the primary deficit is the amount that the federal government needs to borrow to meet all expenses except debt and interest payments. In Q1FY24, controlled expenditure on subsidies and development has helped show a lower fiscal deficit and primary surplus.

They concluded that the need for a serious overhaul of Pakistan’s budget is highlighted by the fact that the federal government’s net revenue receipts, after transfers to provincial governments, will exceed the debt-to-meet all other expenditure in the first quarter of fiscal year 2024. The service was only Rs 26 billion more. ,

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