Pakistan’s Debt to Soar to Rs82 Trillion by June 2024, Warns IMF

Pakistan’s debt situation is expected to worsen in the current fiscal year, as the International Monetary Fund (IMF) has projected that the country’s total public debt and liabilities will increase by Rs11.8 trillion and reach Rs82 trillion by June 30, 2024.

This was revealed in the Memorandum of Economic and Financial Policies (MEFP) that Pakistan and the IMF agreed upon last month, paving the way for the release of $700 million tranche under the $3 billion Standby Arrangement (SBA).

The MEFP showed that the general government and government-guaranteed debt, including the IMF’s, was expected to end up at Rs81.836 trillion by the end of this fiscal year, up from Rs77.9 trillion at the end of September.

The total public debt and liabilities stood at Rs68 trillion in FY2022-23, which means that the country will see a 17% increase in its debt burden this year.

The main reason for the rising debt is the high fiscal deficit, which the IMF estimated to escalate by Rs8.227 trillion for the current fiscal year, equivalent to 7.8% of GDP.

The IMF also rejected the government’s efforts to convince the lender to project lower debt servicing, and instead projected the debt servicing on domestic and external loans to stand at Rs8.627 trillion for the current fiscal year.

This means that the government will have to manage budget financing of Rs7.5 trillion through domestic sources and Rs1 trillion through foreign sources.

The IMF also projected that debt servicing may go up to Rs9.621 trillion for the next fiscal year.

The subsidy amount was kept unchanged at Rs1.39 trillion for the current fiscal year despite the government only releasing Rs2.5 billion during the first quarter of the current fiscal year.

The defence spending was also kept unchanged at Rs1.8 trillion for the current fiscal year.

On the fiscal side, the IMF and Pakistan agreed to cut down the development spending at federal and provincial levels.

At the federal level, the development spending was reduced from Rs843 billion to Rs782 billion for the current fiscal year. The government had allocated Rs950 billion for PSDP projects in the current fiscal year.

For provincial-level development programs, the IMF has projected a reduction from Rs1,440 billion to Rs1,325 billion for the current fiscal year.

On the revenues side, the FBR’s target was kept unchanged at Rs9.415 trillion for the current fiscal year.

On non-tax revenue side, the IMF and Pakistan agreed to jack up collection on petroleum levy from Rs869 billion to Rs918 billion for the current fiscal year.

The IMF staff has also assessed that the pace of accumulation of total public debt and liabilities would continue to persist and may rise to Rs92.24 trillion in FY2024-25.

The IMF has warned Pakistan of the risks to debt sustainability and urged the country to implement structural reforms to enhance revenue mobilization, improve public financial management, and strengthen debt management.

The IMF has also advised Pakistan to maintain a flexible exchange rate regime, build up foreign exchange reserves, and ensure adequate social protection for the vulnerable segments of the population.

The IMF’s projections are based on the assumption that Pakistan will continue to implement the policies and reforms agreed under the SBA, which aims to support the country’s economic recovery and address the long-standing structural challenges.

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