IMF expects early fiscal turnaround for Pakistan

The International Monetary Fund (IMF) has predicted early signs of a fiscal turnaround in Pakistan due to its strict program requirements, including a lower fiscal deficit, restricted expenditures, and stronger revenues, though it also notes increasing indebtedness during the current fiscal year (FY25).

The fund released its Fiscal Monitor 2024 report on Wednesday, predicting Pakistan’s fiscal deficit for the current financial year at 6% of GDP, slightly exceeding the government’s target but lower than last year’s 6.7%.

The IMF emphasizes the need for strict spending controls to reduce this deficit further, projecting it to drop to 4.7% next fiscal year and reach 2.8% by FY29.

The Fund anticipates Pakistan’s primary balance to improve, estimating it at 2.1% of GDP this year, up from 0.9% last year.

General government revenues are expected to rise significantly to 15.4% of GDP due to recent taxation measures, although a slight decline to 15% is forecast for next year.

Pakistan’s debt-to-GDP ratio is projected to increase to 71.4% this year but is expected to trend downward to 60.7% by FY29.

The IMF warns of rising pension and health spending in the coming decades and highlights the challenges of managing fiscal policy amid pressures to increase spending while ensuring macroeconomic stability.

It advises promoting good governance and enhancing the tax system to create a sustainable fiscal future.