Islamabad:
The International Monetary Fund has established a more strict fiscal route for Pakistan by establishing the objective of the main budget surplus for the next fiscal year to 1.6% of the size of the economy that, this time, can be achieved by containing the expenses to a large extent.
Compared to 1% of the fiscal year of the surplus objective of the primary GDP budget, which is calculated after making interest payments, the IMF has established the 1.6% objective for fiscal year 2025-26, according to the details that the fund published on Saturday after the approval of the new loan.
Unlike this fiscal year when the objective of primary surplus had been designed to achieve only depending on the increase in taxes, the objective of the next fiscal year depends largely on restricting expenses.
The details showed that compared to 0.7% of GDP increase in the total income ratio to GDP, the IMF has projected 1.3% of the GDP reduction in spending.
The IMF macroeconomic table showed that the total income of federal and provincial governments is estimated at RS15.2% of GDP or RS19.6 billion in the projected size of next year’s economy. From this, the objective of the Federal Income Board will be RS14.3 billion and it is estimated that around RS4 billion will recover due to income without taxes. The break will come from the provinces.
The total expenses of the five estimated governments in 21.6% of GDP for this fiscal year are projected in 20.3% of GDP or approximately RS26.3 billion, according to IMF projections. These are barely rs1 higher than the estimated expenses of this year, which requires all governments to maintain their hardened belts.
Since the objective of the main surplus is exclusive to interest payments, the sources of the Ministry of Finance said that the containment in expenses would be largely on the development side without space available on the defense spending side.
Pakistan cannot afford to reduce or contain the defense budget in the light of new tensions in the region and about 2% of GDP will be assigned for defense expenses, the sources of the Ministry of Finance said. The government has indicated to increase the defense budget by at least 18% compared to the last year, they added.
Nigel Clarke, deputy manager of the IMF and president of the IMF Board that approved on Friday two packages worth $ 2.4 billion, that the risks to Pakistan’s prospects remain high, particularly of the uncertainty of global economic policy, the increase in geopolitical tensions and persistent national vulnerabilities.
He said that in this context, the Pakistani authorities must maintain solid macroeconomic policies and accelerate the reforms to safeguard macroeconomic gains and underpin a stronger and sustainable medium -term growth led by the private sector.
The Ministry of Finance plans to assign RS921 billion or 0.7% of GDP for the development budget for the next fiscal year.
An amount of approximately RS1.35 billion or just over 1% of GDP is being reserved to give subsidies in the next fiscal year, sources said. From this energy, the subsidies of the sector are estimated at RS1.04 billion or 0.8% of GDP, sources said.
Some of the cabinet ministers are not in favor of assigning a great cake of the development budget when in particular it cannot be spent during the course of the fiscal year. There are huge waste in the name of the development expense, which was also admitted by the Ministry of Planning this week.
The IMF has projected the general budget deficit at 5.1% of GDP or RS6.6 billion for the next fiscal year. In terms of the size of the economy, the deficit is 0.8% of GDP less than this fiscal year, but almost at the same level in absolute terms.
The IMF of the IMF completed on Friday the first review of the program and allowed an immediate disbursement of around $ 1 billion by rejecting the unjustified opposition of Indian. The IMF Executive Board also approved the Resilience and Sustainability Center (RSF), with access of approximately $ 1.4 billion.
The IMF said that under the rescue package, key priorities include macroeconomic sustainability consistent through the consistent implementation of solid macro policies, including the reconstruction of international reserve shock absorbers and the expansion of the tax base. He also emphasized the need to advance reforms to strengthen competition and increase productivity and competitiveness; reform state companies and improve the provision of public services and the viability of the energy sector; and building climate resilience.
The IMF pointed out that inflation fell to a historical minimum of 0.3% in April, and progress in disinflation and more stable domestic and external conditions have allowed Pakistan’s state bank to reduce the policy rate by a total of 11% since June 2024.
The IMF said that it is projected that the gross reserves of official currencies of Pakistan will reach $ 13.9 billion at the end of June 2025 and continue to rebuild in the medium term. Has projected $ 17.7 billion of reservations in the next fiscal year and a current account deficit under 0.4% of GDP.
However, there is no increase in foreign direct investment in the next fiscal year, estimated only at 0.6% of GDP for the next fiscal year as well.
Nigel Clarke, deputy director manager, said that “Pakistan has made significant progress in the restoration of macroeconomic stability despite a challenging environment. Since the approval of the installation of extended funds, the economy continues to recover, with strongly lower inflation and remarkably stronger external buffers, he added.
“The firm implementation of the FY2025 budget and the approval of key fiscal reforms, especially the Agricultural Income Tax, underpin the process of reconstruction of the credibility of the policy formulation. Continue to mobilize greater income of the imponed sectors and the unconforming will make the tax system more equitable and efficient, according to the IMF.
“The narrow monetary policy position of the State Bank of the Bank of Pakistan (SBP) has been fundamental to reduce inflation to historical minimums. Monetary policy must remain properly adjusted and data dependent to ensure that inflation is anchored within the objective range of the SBP, emphasized the background.
According to Nigel, a more flexible exchange rate will facilitate the adjustment to external and national shocks, helping to reconstruct the reserves.
