IMF links debt reduction framework to aggressive fiscal reforms

Karachi – To improve Pakistan’s fiscal position and manage the rising debt servicing burden, the federal government has formulated a new long-term economic framework, which aims to bring the country’s debt to GDP ratio within a safe and sustainable range.

Under this new economic document, the government will take steps to limit the debt stock to 67.4 percent of GDP next year, while it will be continuously reduced on a medium- and long-term basis. According to economists, this is the first time in the country’s history that such long-term structural indicators are being targeted.

According to the plan, the debt ratio will be reduced to 64.7 percent by 2028, 61.6 percent in 2029 and 56.8 percent at the beginning of the next decade, i.e., by 2033. The framework ends in 2034, when the overall debt burden is projected to fall to 55.7 percent of GDP.

In line with this declining debt graph, the IMF has suggested further expansion of the Benazir Income Support Program to protect the poor and middle class from the effects of inflation so that social protection is not affected during the reform process.

However, the International Monetary Fund has warned the country’s economic managers that the entire framework may turn out to be a mere paper exercise in the absence of institutional reforms. The IMF’s recent review report has said that unless there is stricter monitoring of expenditure and targeted widening of the tax net, the dream of debt reduction cannot be realised.

The report has insisted on addressing the shortcomings of the FBR’s administrative structure and resolving the management crisis in the energy sector. The Fund has made it clear that sustainable access to external financing and economic stability depend on reducing the annual losses of state-owned enterprises and freezing the power sector’s circular debt.