IMF Report Warns of Pakistan's Soaring Debt, Projecting Rs82 Trillion by FY2023-24 End

IMF also assessed that the pace of accumulation of total public debt, liabilities would continue to persist, which might go up to Rs92.24tr in FY2024-25

Islamabad, December 2, 2023:

The International Monetary Fund (IMF) has raised alarm bells, estimating that Pakistan’s escalating debt may reach a staggering Rs82 trillion by the conclusion of the ongoing financial year on June 30, 2024. This revelation, part of the IMF’s comprehensive assessment, underscores the pressing economic challenges facing the country.

Notably, the IMF staff predicts that the trajectory of accumulating public debt and liabilities will persist, potentially skyrocketing to Rs92.24 trillion in the fiscal year 2024-25. This forecast has triggered concerns among economists and policymakers about the sustainability of Pakistan’s financial landscape.

In a significant development, Pakistan and the IMF have reached a staff-level agreement, finding common ground on the Memorandum of Economic and Financial Policies (MEFP). This agreement sets the stage for presenting proposals before the Fund’s Executive Board to secure a $700 million tranche under the existing $3 billion Standby Arrangement (SBA) program.

The agreed fiscal framework reveals that general government and government-guaranteed debt, including that owed to the IMF, is estimated to rise to Rs81.836 billion by the end of June 2024. This marks a significant increase from Rs77.9 trillion recorded at the end of September 2023.

The IMF’s projection indicates that the total public debt and liabilities will experience a substantial surge, primarily attributed to the escalating fiscal deficit. The Fund estimates a rise of Rs11.8 trillion in the current fiscal year, equivalent to 7.8 percent of the GDP. Despite government efforts to negotiate lower debt servicing, the IMF remains steadfast in projecting a servicing cost of Rs8.627 trillion for the ongoing fiscal year, with an anticipated increase to Rs9.621 trillion in the next fiscal year.

A noteworthy aspect of the report is the challenge faced by the government in financing the budget. With Rs7.5 trillion required from domestic sources, only Rs1 trillion is expected from foreign avenues. This raises questions about the government’s ability to manage its fiscal affairs effectively.

On the expenditure side, the IMF and Pakistan have agreed to reduce development spending at both federal and provincial levels. Federal development spending sees a cut from Rs843 billion to Rs782 billion for the current fiscal year, while provincial programs are projected to decrease from Rs1,440 billion to Rs1,325 billion.

As the fiscal year unfolds, all eyes are on how Pakistan navigates these economic challenges, implements necessary reforms, and manages its debt to ensure long-term financial stability.