Despite Recovery Pakistan’s Economy to Suffer Due to Past Loans: IMF

IMF has projected a gradual increase in revenues and reduction in expenditures by the Pakistan government in three years which will bring the public debt-to-gross domestic product (GDP) ratio down to 78.3 percent. However, the current ratio proportion of debt to the GDP is at 87.2 percent, which is not only eating up one-third of the total budget in debt servicing but also shows difficult times ahead for the economy.

For the fiscal year 2021-22, the IMF has projected a debt-to-GDP ratio of 82.1 percent for Pakistan.

IMF’s Fiscal Monitor report, “Policies for the Recovery” came out on Wednesday and painted a rather bleak picture for Pakistan’s economic growth and recovery, at least in the near future.

According to the report, Pakistan’s budget deficit – the gap between expenditures and revenues – will be 6.7 percent of GDP in the current fiscal year, about half a percentage point less than the target approved by parliament. The IMF has also projected the primary balance for the next five years, which is calculated by excluding interest payments.

That also shows that to achieve a primary surplus in the next fiscal year one of the two expenditures will have to be reduced – development budget or defense spending. “Pakistan’s deficit is estimated to have tightened for its fiscal year that ended in June 2020 as Covid-19 impacted only the fourth quarter and the capacity to scale up spending was limited,” said the IMF.

On the global front, the International Monetary Fund (IMF) has projected governments’ measures to cushion the blow from the pandemic total a staggering $12 trillion globally, or the gross debt at 86 percent of GDP [gross domestic product] for 2021 compared to 87.2 percent in 2020.

According to the report, the net debt of global governments is projected at 79.1 percent of the GDP for 2021 against 79.7 percent in 2020. The government revenue is projected at 16.1 percent of GDP for 2021 and 17 percent for 2022 against 15.1 percent during the same period of 2020.

The Fund has projected government primary balance at -0.4 percent for 2021 against -1.7 percent in 2020. Further, the government’s overall balance is projected at -6.7 percent for 2021 against -8 percent in 2020. The report has projected government expenditure to decrease to 22.8 percent of GDP in 2021 and 22.2 percent in 2022 compared to 23.1 percent in 2020.

Circling back to Pakistan and South Asia, the Fund stated that Pakistan’s deficit is estimated to have tightened for its fiscal year that ended in June 2020 as COVID-19 impacted only the fourth quarter and the capacity to scale up spending was limited.

Green and environmental investment can be combined with public employment programs to maximize investment’s job impact (as with the Green Army projects in Australia or the Conservation Corps in the United States), retrain the labor force, and protect people in the informal sector (for example, tree-planting programs in Ethiopia and Pakistan).

The same IMF report also shows that Bangladesh will beat India in per capita gross domestic product (GDP) in 2020. Bangladesh’s per capita GDP in dollar terms is expected to grow 4% to $1,888 while India’s per capita GDP is expected to decline 10.5% to $1,877.

This will make India the third poorest country in South Asia, with Pakistan and Nepal reporting even lower per capita GDP. Bangladesh, Bhutan, Sri Lanka, Nepal and Maldives will be ahead of India.

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