Country needs huge financing: IMF

ZAHEER ABBASI

ISLAMABAD: The International Monetary Fund (IMF) has forecast that the country will require a gross financing of 30.2 percent of the GDP to meet its debt obligations and to finance a projected 6.4 percent fiscal deficit in the current fiscal year.

The IMF Fiscal Monitor for October 2012 projected that Pakistan’s gross financing needs would be 23.9 percent of the GDP for maturing debt and 6.4 of the GDP to finance the fiscal deficit in 2012-13. An official said that financing needs would be a major challenge for the country in the current fiscal year largely because of short-term borrowing by the present government during the last four years. 

The country’s total revenue is projected at 12.8 percent of the GDP in the current fiscal year against 19.2 percent expenditure reflecting a deficit of 6.4 percent of the GDP. The 2.1 percent of GDP primary balance deficit – revenue minus non-interest expenditure – indicates a persistence heavy reliance of the country on borrowing in the near future.

The government borrowing increased the country’s total gross debt to 62.4 percent of GDP in 2012 from 60.2 percent a year ago and net debt-gross debt (excluding foreign exchange reserves) to 59.1 percent of the GDP in the current fiscal year from 56.9 percent in the previous year. The country needs to improve the primary balance by mobilizing revenue and rationalizing expenditure to create a fiscal space for meeting debt obligations. The IMF projections reveal that Pakistan’s cyclically adjusted primary balance would register a surplus of 2.9 per cent in 2020-30 which means that the country would continue to borrow to retire its debt.

An official of Ministry of Finance, who requested anonymity, said that the as per IMF projections the country would require a  financing of Rs 1.510 trillion to finance the fiscal deficit in the current fiscal year and Rs5.6 trillion for maturing debt, including $2.8 billion repayment to the IMF for Stand-By Arrangement (SBA). He said that the security related expenditure and debt servicing (due to massive short term borrowing by the present government during the last four years to finance the fiscal deficit) constitutes 85 percent of the current expenditure and around 68 percent of the total expenditure.

According to him, total debt is very alarming as more short-term borrowings are expected in the current fiscal year due to failure of the Finance Ministry to create a secondary debt market for long term borrowing or taking tangible measures for revenue mobilization.