The Painful Lessons of Pakistan’s Fiscal Fiasco

According to a recent International Monetary Fund (IMF) report, Pakistan is set to miss all fiscal and debt reduction targets for the current and next fiscal year. The report highlights that the budget deficit could peak at 8.3% of the size of the nation’s economy, which raises questions about the effectiveness of the $6.5 billion Extended Fund Facility aimed at achieving fiscal consolidation and putting the country on a sustainable path toward debt reduction.

Poor performance of Pakistan’s incumbent government

The IMF report has revealed a significant slippage of 2.1% of the GDP or Rs1.8 trillion in Pakistan’s fiscal and debt reduction targets. This poor performance puts a question mark on the effectiveness of the current government in managing the country’s fiscal situation.

Pakistan’s deteriorating indicators compared to other countries

The Fiscal Monitor report showed that Pakistan’s indicators are deteriorating at a time when other countries are showing improvement in their fiscal policies. The report stated that fiscal policy was returning to normal three years after the outbreak of the Covid-19 pandemic, but Pakistan is missing all its fiscal and debt reduction targets.

Debt dynamics deteriorating in Pakistan

The IMF report also highlighted that debt dynamics are deteriorating in emerging market economies and low-income developing countries like Pakistan, with sizable shares of debt in foreign currency, as currency depreciation and rising interest rates come together with inflation. Pakistan’s gross public debt is shown at 73.6% of the GDP by the end of this fiscal year, compared to the IMF’s projection of 65% when signing the program in July 2019. This raises concerns about the country’s debt sustainability and the effectiveness of the IMF’s Extended Fund Facility.

The big picture: Implications of Pakistan’s fiscal situation

Pakistan’s poor fiscal situation could have significant implications for the country’s economic growth, debt sustainability, and ability to access international markets. It also raises concerns about the effectiveness of the IMF’s Extended Fund Facility and Pakistan’s ability to meet its future debt obligations. The government must take urgent measures to address these issues and put the country on a sustainable path toward economic growth and debt reduction.

The IMF report revealing Pakistan’s breach of all fiscal targets highlights the country’s economic challenges and the need for urgent measures to address them. The widening budget deficit, increasing public debt, and low revenue-to-GDP ratio are alarming indicators that require immediate attention from the government and relevant authorities. Pakistan must take corrective measures and implement sound economic policies to put the country on a sustainable path toward fiscal consolidation and debt reduction. Failure to address these challenges may lead to further economic instability and hinder the country’s long-term growth prospects.

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