The International Monetary Fund (IMF) projects that the federal government’s total debt will climb to Rs 81.8 trillion by the end of this fiscal year, while the budget deficit and interest payment costs will exceed approved allocations .
Due to unrealistic budget allocations, the IMF now projects Pakistan’s federal budget to be Rs 15.4 trillion, which is Rs 1.1 trillion more than approved by the National Assembly in June this year, sources told The Express Tribune.
Government sources said the global lender forecast public and state-guaranteed debt could reach Rs 81.8 trillion, or 77.3 per cent of gross domestic product (GDP), by the end of the financial year in progress, in June 2024.
The lender revised upwards its Pakistan debt projections during the recent revision negotiations, only due to spending slippages, they added.
Sources said that against the fiscal deficit target of Rs 6.9 trillion, the IMF estimates that the deficit would peak at a record Rs 8.2 trillion, a slippage of Rs 1.3 trillion. The IMF’s new estimates are in line with its previous projections.
They said the main reason for the higher-than-expected gap between expenses and revenues was the unrealistic allocation of interest payments.
The lender estimated the cost of interest payments at a record 8.63 trillion rupees. This figure is nominally higher than the IMF’s previous estimate, Finance Ministry sources said.
Two months ago, The Express Tribune had reported that interest charges could exceed the budgetary allocation by over Rs 1 trillion, while the government was also facing an external financing gap of at least 4 .5 billion dollars.
Acting Finance Minister Shamshad Akhtar announced on Thursday that he had abandoned plans to launch Eurobonds worth $1.5 billion.
In the budget, the Finance Ministry had allocated Rs 7.3 trillion for interest payment. But during the recent revision negotiations, the Finance Ministry revised this amount upwards to 8.5 trillion rupees, still 140 billion rupees less than the IMF’s new projection, the sources said.
The IMF has adjusted Pakistan’s public and state-guaranteed debt position upwards, both in absolute terms and in terms of the size of the economy. The lender expects public debt, direct and guaranteed, to reach 81.8 trillion rupees by June next year, the sources said.
Pakistan enacted the Fiscal Responsibility and Debt Limitation Act (FRDLA) in 2005 to stem the growing debt burden.
Debt and deficit ceilings under FRDLA have proven ineffective in containing spending and the debt limit has been consistently exceeded over the years, according to a new Public Investment Management Assessment report.
The IMF published a report on Friday which indicates that total public debt has tended to increase since 2010, systematically exceeding the 60% ceiling set by the FRDLA.
The federal government’s debt, excluding liabilities, was projected at Rs77.8 trillion by the IMF. The direct consequence of growing debt is the uncontrolled cost of interest payments.
Sources said the IMF had estimated the domestic debt servicing cost at Rs 7.5 trillion, which was Rs 1.1 trillion more than the Finance Ministry’s budgetary allocation.
Similarly, the IMF has estimated the cost of paying interest on external debt at Rs 1.02 trillion, which is Rs 150 billion more than the Finance Ministry’s allocation.
Apart from increased spending, another important reason for rising interest costs is the central bank’s monetary policy, which has set the policy rate at 22%.
The response from the spokesperson for the Ministry of Finance, Qamar Abbasi, was awaited until the filing of the file.
The growing need for budgetary financing will leave virtually no room for the private sector to borrow to operate and develop its businesses. Sources said the IMF did not see the budgeted 2.7 trillion rupees of external financing fully materialize and estimated the amount at just over 1.2 trillion rupees.
The reduced availability of external loans for budget financing will result in an increase in borrowing from commercial banks. The IMF projects that domestic financing could reach 6.9 trillion rupees, compared to the budget estimate of 4.8 trillion rupees, the sources said.
Learn more: Gloomy GDP projections
Overall, the IMF projects that the federal budget deficit would be reduced by 1.23 trillion rupees compared to the plan approved by the National Assembly in June this year. As per IMF projections, the sources said, current expenditure for the current fiscal year could remain around Rs14.6 trillion, or over Rs1.24 trillion.
But development spending is projected at Rs782 billion, which is Rs168 billion less than the allocation approved by the National Assembly. As a result, the size of the budget will exceed Rs 15.4 trillion for the first time.
The global lender kept the overall primary balance unchanged at 0.4 per cent of GDP or Rs 401 billion, which will require massive revenue efforts and a reduction in subsidies.
Published in The Express Tribune, November 19th2023.