IMF wants Pakistan to make massive fiscal changes

The International Monetary Fund (IMF) has asked the Pakistani government to bring about massive fiscal changes amounting to Rs 1,150 billion to cut the budgetary shortfall at 0.4% of the Gross Domestic Product (GDP).

According to details, officials of the international body held an important meeting in the federal capital Islamabad. The officials warned the Pakistani government regarding the country heading towards an ‘unsustainable’ debt trap if the primary deficit not reduced from a projected negative 2.9% of the GDP in the post-COVID-19 scenario in the outgoing fiscal year 2019-20 to negative 0.4% of GDP for the next budget 2020-21.

Currently, Pakistan’s total debt and liabilities hit Rs 42,820 billion, equivalent to 98.2% of the GDP till the end of the third quarter (July-March) period of the current fiscal year so it’s heading towards 100% of GDP at a rapid speed.

The IMF prescription suggests that Islamabad requires massive fiscal adjustments of 2.5% of the GDP for bringing down its primary deficit from negative 2.9% of GDP to negative 0.4%, equivalent to almost Rs 1,150 billion in the next budget through different measures including the freezing of salaries and defence budget.

However, the Pakistani authorities in response to the officials of the International Monetary Fund, said that the inflation in the country remained in double-digits, and freezing of salaries did not seem like a reasonable option. The government said that inflation has impacted the salaried class the most and 10-15% increase in salaries and pensions was inevitable.

Let it be known this meeting has taken place just days before the government is going to announce the fiscal budget.