IMF Aims for Surplus in Pakistan’s Primary Deficit for 2023-24

The International Monetary Fund (IMF) is collaborating with Pakistan to shift the country’s primary deficit into a surplus as part of a $3 billion Stand-By Arrangement (SBA) for the fiscal year 2023-24. This initiative comes in light of Pakistan’s warning to the IMF about an anticipated increase in debt servicing costs, projected to reach PKR 8.5 trillion ($50.8 billion), which deviates from the budget by PKR 1.2 trillion.

Dr. Shamshad Akhtar, Pakistan’s Finance Minister, has conveyed optimism about the ongoing policy discussions with the IMF. These talks, which began last week, focus on managing the country’s high interest payments and addressing challenges related to securing external debt. The IMF has requested a revenue collection plan of PKR 6.667 trillion from Pakistan’s Federal Board of Revenue (FBR) for the current fiscal year.

Pakistan is currently facing difficulties in obtaining approximately $6.5 billion in external loans due to tough economic conditions and has sought assistance from the IMF. Negotiations are underway for a $710 million second loan tranche under the $3 billion short-term program.

A notable portion of Pakistan’s debt costs is domestic, while external debt servicing surpasses PKR 900 billion ($5.4 billion). Increased interest payments may push the projected federal budget deficit to a historic PKR 8.7 trillion ($52 billion). Nonetheless, Pakistan’s external financing needs are still below $24 billion, and the country is exploring options such as rescheduling Chinese loans and issuing Green Bonds, although the outlook remains uncertain.

In the third quarter of 2023, the caretaker government implemented measures like reducing subsidies and deferring development spending to lower the overall deficit and achieve the IMF’s primary surplus goal. Proposed strategies include debt re-profiling, expenditure reforms, and broad-based taxation to address these deficits and manage inflation, government borrowing, economic growth, and future financial commitments.

The IMF’s program is slated to conclude in April 2024. Despite the fiscal challenges, the fund appears unconcerned about the growing fiscal deficit and rising debt servicing costs. The objective of turning Pakistan’s primary deficit into a surplus is expected to play a crucial role in handling inflation and government borrowing in the nation.