IMF aims for surplus in Pakistan’s primary deficit in 2023-24

The International Monetary Fund (IMF) is working with Pakistan to transform the country’s primary deficit into a surplus under a $3 billion Stand-By Arrangement (SBA) for the fiscal year 2023-24. This comes as Pakistan warns the IMF of an expected surge in its debt servicing costs to PKR 8.5 trillion ($50.8 billion), which is a PKR 1.2 trillion deviation from its budget.

Pakistan’s Finance Minister, Dr Shamshad Akhtar, expressed optimism regarding ongoing policy-level discussions with the IMF. These negotiations, initiated last week, aim at addressing the country’s high interest payments and difficulties in acquiring external debt. The IMF has demanded a Rs. 6.667 trillion revenue collection plan from Pakistan’s Federal Board of Revenue (FBR) for the ongoing fiscal year.

The country is currently struggling to secure approximately $6.5 billion in external loans due to harsh economic conditions and has requested IMF’s assistance. Negotiations are underway for a $710 million second loan tranche under the $3 billion short-term program.

A significant part of Pakistan’s debt cost is domestic, while external debt servicing exceeds PKR 900 billion ($5.4 billion). As a result of increased interest payments, the projected federal budget deficit might reach a record PKR 8.7 trillion ($52 billion). Despite this, Pakistan’s external financing needs are under $24 billion, and it is considering rescheduling Chinese loans and issuing Green Bonds, even though prospects remain uncertain.

In Q3 2023, the caretaker government took measures such as slashing subsidies and postponing development spending to reduce the overall deficit and meet the IMF’s primary surplus objective. Strategies like debt re-profiling, expenditure reforms, and broad-based taxation have been proposed to mitigate these deficits and manage inflation, government borrowing, growth, and future financial obligations.

The IMF’s program is set to conclude in April 2024. Despite the fiscal challenges, the fund does not seem concerned about the expanding fiscal deficit and rising debt servicing. It is expected that the IMF’s goal to transform Pakistan’s primary deficit into a surplus will be a critical factor in managing inflation and government borrowing in the country.

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