IMF predicts Pak economic turnaround from 2020

WASHINGTON: The International Monetary Fund (IMF) has estimated increase in economic growth for Pakistan after the year 2020.

During a press conference here on Wednesday, Deputy Director Research of the IMF, Gian Milesi-Ferretti, observed that Pakistan has started implementing an ambitious programme with the IMF.

"There's a need for a substantial fiscal adjustment. The deficit over the last year has exceeded expectations," he said adding that tax revenues were also picking up. Arguing the relation between ongoing fiscal adjustment and compression in domestic demand, he said, "We have a forecast for the growth rate that, in short run, is going to decline: 3.3 in 2019, 2.4 in 2020, but pick up after that." The official further said that there were good signs on the confidence front, with increased demand for local currency assets by foreign investors in light of the fact "We now have an exchange rate that is more reflecting actual economic conditions, with some degree of floating."

He acknowledged that Pakistani authorities have been steadfast in their implementation of the [IMF] programme albeit challenges. "It is a set of macroeconomic imbalances that needs to beaddressed,” he said adding that certain uncertainties including oil prices have been reasons as well.

“We have seen good signs. And we hope that there will be a notable pickup in growth over the medium term, which is sorely needed in Pakistan to lift the living standards,” he said. Commenting on India’s Economic outlook, he said overall growth remains very strong by the standards of the world economy, “even though it is lower than the very high standards at which we were accustomed to looking at India. A growth rate above 6 percent is still notable and extremely important in a country that has such a large population.”

There are many macroeconomic challenges for India including emphasis on the need to keep the fiscal deficit under control. “Of course, India and Pakistan are not immune to global geopolitical tensions and to trade tensions that can take a toll on their manufacturing activity and demand for their exports,” he said.

Meanwhile, the IMF projected that Pakistan’s primary balance would be converted from deficit to surplus from the next fiscal year 2021 under the Fund programme. The IMF has predicted that the country’s gross debt stood at 76.6 percent of GDP in FY2019 that would be projected to go up to 78.6 percent of GDP in the ongoing FY2020.

The gross debt, according to the IMF estimates, will start declining from FY2021 when it will be reduced to at 76.1 percent. The gross debt is projected at 72.5 percent of GDP in FY2022, 69 percent of GDP in FY2023 and 65.4 percent of GDP in FY2024.

According to fiscal monitor released by the IMF from Washington DC on the eve of its annual meeting on Wednesday showing the primary deficit that stood at negative 3.5 percent of GDP in the last Fiscal Year 2019 would be brought down to negative 0.5 percent of GDP in ongoing FY2020. The primary deficit will be converted from negative 0.5 percent of GDP in FY2020 to surplus 1 percent of GDP in FY2021. The IMF data shows that the primary balance will remain surplus to the tune of 2.1 of GDP in FY2022, 2.7 percent of GDP in FY2023 and 2.7 percent of GDP in FY2024. The primary deficit means excluding the expenditure incurred on debt servicing so Pakistan is committed with the IMF to convert primary deficit into surplus from next fiscal year and maintain it in surplus position over the medium term under the condition of the IMF programme.

The IMF data shows that Pakistan’s budget deficit would gradually reduce from 7.4 percent of GDP in ongoing fiscal year 2020 to 2.6 percent of GDP by FY2024.

The budget deficit that had climbed to 8.8 percent of GDP in the last FY 2019, would now stand at 7.4 percent of GDP in the ongoing fiscal year 2020. The IMF projected that the budget deficit would start declining from FY2021 when it would stand at 5.4 percent. The budget deficit is projected at 3.9 percent of GDP in FY 2022, 2.8 percent of GDP in FY2023 and 2.6 percent of GDP in FY 2024.

“The IMF has projected persistent decline in the budget deficit in years to come on the basis of this assumption that the country’s revenues will mobilise and expenditure will be slashed down,” said one independent economist on the condition of anonymity here on Wednesday.

The IMF’s projections are based on improved government general revenues as it is estimated that the overall revenues, which stood at 12.8 percent of GDP in the last FY 2019 would now jack up to 16.3 percent in FY2020. The overall revenues to GDP ratio is projected to touch 17.9 percent in FY2021, 19 percent of GDP in FY2022, 19.6 percent of GDP in both FY 2023 and FT2024.

The expenditure of the government of Pakistan is projected to be curtailed as it stood at 21.3 percent of GDP in FY2019 and it would go up to 23.6 percent of GDP in FY2020. The expenditure in percentage of GDP will be projected at 22.9 percent in FY 2021, 22.9 percent in FY2022, 22.4 percent in FY2023 and 22.1 percent in FY2024.