IMF sees rising revenues, falling fiscal deficits in Pakistan

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The International Monetary Fund is expecting increasing revenues and declining fiscal deficits and debt ratios in Pakistan over the next few years. In its Fiscal Monitor launched in Washington on Tuesday, the IMF said the debt ratio was expected to fall in the short term from relatively high levels over the past few years and general government deficit was on the decline. The IMF said the government revenue in Pakistan was expected to increase from 13.2 per cent of GDP in 2013 to 14.9pc in 2014, 15pc in 2015 and 15.4pc in 2016-17, and come down to 15.3pc in 2018-19.

The government expenditure at 21pc of GDP was estimated to fall to 20.2pc in 2014 and reach 18.6pc till 2019.

It said the gross government debt was expected to decline from a peak of 63.8pc of GDP in 2012 to 63.7pc in 2014, going down steadily to 54.3pc in 2019.

But the net debt was estimated to go up from 60.3pc in 2013 to 61.2pc during the current year and fall to 60.2pc in 2015 before touching 52.9pc by 2019.

The IMF projected general government deficit at 5.3pc in 2014, 4.2pc in 2015 and 3.3pc in 2016. It will stabilise at 3.2pc till 2019.

It said Pakistan’s maturing debt in 2014 was estimated at 30.2pc of GDP and budget deficit at 5.3pc of GDP and hence there would be a financing need of about 35.5pc of GDP. But in 2015, maturing debt was estimated down at 29.4pc and budget deficit at 4.2pc and total financing needs narrowing down slightly to 33.6pc of GDP.

According to the IMF, the global fiscal risks were now abating somewhat, but remain elevated in advanced economies. In emerging market economies and low-income countries, fiscal vulnerabilities are rising, although at moderate levels.

For example, the average fiscal deficit in advanced economies has nearly halved since the crisis peak and now stood at around 3.5pc of GDP. Fiscal consolidation will continue in 2014 but at a more gradual pace, with a lesser drag on growth.

The exception to this picture is Japan where fiscal consolidation measures are starting this year, notably with the recent first stage of the consumption tax rate increase that took place last week.

The environment faced by emerging economies has turned more challenging. In some economies, financial vulnerabilities and changes in market sentiment will likely compound the fiscal challenges. For example, those economies with higher non-resident holdings may see sharper increases in interest rates as liquidity conditions in advanced economies tighten.

The IMF advised the advanced economies to continue with fiscal consolidation at a steady and gradual pace to lower debt ratios to prudent levels. The design and implementation of well-articulated, credible medium-term consolidation plans can help in this regard, but these plans are still lacking in some countries, most notably the United States and Japan.

Those emerging market economies with large debt and deficits like Pakistan and most vulnerable to market volatility should start to rein in deficits now.

In other emerging market economies, fiscal reforms are still needed, even if with less urgency.

It said that any spending reform must ensure the sustainability of the major budget items, particularly the government wage bill and social benefits because these constitute major part of the total spending.

Also, the expenditure reforms should seek to achieve efficiency gains, while preserving equity through social programmes.