FeaturedNationalVOLUME 18 ISSUE # 25

Missed targets, more miseries

Pakistan is set to miss fiscal and debt reduction targets for the current fiscal year and the situation will worsen in the next fiscal year. The budget deficit is projected to surge to 8.3pc of the GDP. According to the International Monetary Fund, the deficit may widen to 6.8pc by the end of June. It will be a slippage of 2.1pc of the GDP or Rs1.8 trillion. It indicates the worst performance of the coalition government and serious challenges for the next setup and people of the country.

Pakistan has been facing serious issues on international and national fronts for many decades and like the previous rulers, the current government also failed to tackle them. Rising national and international debt, inflation and joblessness are major issues of the country. Terrorism is also increasing.

Pakistan needs to repay another $3.7 billion in external debt by the end of June 30 this year, according to Bloomberg. During the current fiscal year, the country has been struggling to avoid default with the help of friendly countries and multilateral lending agencies but the next fiscal year is about to begin with another huge requirement of dollars, it warned. According to Fitch Rating, Pakistan would have to repay $3.7bn up to June 2023. It expects China to roll over a $2.4bn loan maturing next month. According to the report, Pakistan has to pay $700m in May and $3bn in June. Despite support from Saudi Arabia and the UAE, the IMF remained unsatisfied. Staff-level agreement for $1.1.bn could not be concluded. However, the Fitch Ratings expects Pakistan and the IMF to reach an agreement. Pakistan has already received financial commitments from Saudi Arabia and UAE, it said. Independent economists and analysts believe that both the default and restructuring of external debts would be greatly harmful to the economy. With the support of China, Pakistan has been striving to avoid both situations.

On the other hand, the IMF said Pakistan needed to further increase interest rates to stabilise inflation. In its regional economic outlook for the Middle East and Central Asia, it said, “Inflation has continued to rise in Egypt, Pakistan and Tunisia, with the comparison of current policy interest rates relative to natural policy rate estimates suggesting that further interest rate increases are needed to stabilise inflation.” The report said that where the policy stance was loose and inflationary pressures persisted, tighter monetary policy should be considered to stabilise inflation and inflation expectations like in Egypt, Pakistan, and Tunisia.

The IMF’s regional report has also projected a $37.4 billion trade deficit in goods and services in the next fiscal year on the back of $77.3 billion worth of goods. The exports of goods and services are projected at nearly $40 billion for the next fiscal. It forecast the foreign exchange reserves at $11.7 billion or equal to 1.7 months of import cover. The IMF said that pressures on the exchange rates and international reserves remain significant, with sharp depreciations in Egypt and Pakistan since October 2022.

Pakistan’s growth rate is expected to slow materially from 6pc in 2022 to 0.5pc this year. The IMF said that growth in the region will accelerate to 4.4pc in 2024 but it will hover around 3.5pc in Pakistan. In Pakistan, inflation is projected to more than double to about 27pc this year, reflecting broadening price pressures, according to the new report. It expected Pakistan to undertake meaningful fiscal consolidation, including subsidy reforms. As a result, growth prospects are set to weaken in Pakistan as tighter monetary and fiscal policies are needed for macroeconomic stability. The global lender marginally lowered its projection for Pakistan’s current account deficit for this fiscal year — keeping it at 2.3pc of the GDP. The report says Pakistan will miss the fiscal and debt reduction targets of this fiscal year and the situation will worsen in the next fiscal year. Pakistan’s revenue-to-GDP ratio may also remain below the levels assessed earlier. It is now projected at 12.2% of the GDP, which should also be a matter of concern for the IMF that will also miss its programme targets. For the next fiscal year, the IMF has projected revenues at just 12.5pc of the GDP.

For the next fiscal year, the government has projected an average inflation rate of 20pc. According to the finance ministry, the headline inflation, measured by the consumer price index (CPI), is expected to remain at elevated levels in the months to come. It added that its key drivers were the hike in food and energy prices. “Currency depreciation and rising administered rates had contributed to jacking up the overall price level. Global commodity prices are showing a downward trend but still on a higher side compared with the pre-Covid-19 level. A slow recovery from flood damages has caused the supply of essential crops to remain short of domestic requirements, consequently intensifying the inflation rate,” it added in its monthly report.

Pakistan’s economy is facing significant challenges characterised by high inflation and a slowdown in economic activity. The industrial sector will remain under clouds because of the contractionary monetary and fiscal policies. In March, the output of large industries was expected to have increased in comparison with February because of the positive seasonal effects. However, due to the high-base effect, the year-on-year large scale manufacturing might still be marginally negative. The trend in Monthly Economic Indicator (MEI) during the first nine months of the current fiscal year remained volatile on account of high inflation, high-interest rates, fiscal consolidation, and lack of confidence in economic agents, the ministry said.

Undoubtedly, Pakistan is facing serious economic issues and political instability is a major hurdle to undertake reforms. It is imperative for the political leadership to sit together and join hands for Pakistan’s economic stability.