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HomeMonetary PolicyIMF Urges Pakistan to Further Cap Limits on Short-Term Borrowings

IMF Urges Pakistan to Further Cap Limits on Short-Term Borrowings

The International Monetary Fund (IMF) is looking to go ahead with the short-term borrowing constraints to fill the budget gap resulting from the projections that Pakistan’s gross funding needs would be 1.5% higher than previous estimates for its gross domestic product.

During the fiscal year ending June 30, 2021, Pakistan’s gross funding needs or money needed to finance budgets and fulfil foreign obligations may be approximately Rs14 trillion or 30.7% of its economic size, which is Rs700 billion or 1.5% of GDP higher than the previous estimates published by the IMF in its April report after approval of $1.4 billion in emergency funding.

Sources told Pak Revenue that the increase in the need for gross funding is mainly motivated by the unexpected decrease in tax revenues and the increase in government spending, widening the budget gap.

As per the Federal Board of Revenue, due to such uncontrollable circumstances such as the Covid-19 pandemic, tax receipts declined to a bare minimum in the last fiscal year ending 30 June 2020, resulting in even more borrowings, as the country’s gross funding needs were 31.2% of GDP.

With the approval of its second study, the IMF bailout programme could be resurrected if all parties find agreement on outstanding issues such as the real tax revenues, subsidies, and circular debt of the FBR. The second review was scheduled for approval in March, but the inability of the government to effectively prepare budgetary needs and raise energy prices halted its development.

Sources predict that the gross funding needs for the next fiscal year will decrease to 27%, which is higher than the 24% estimate made in the April study to date, though the decrease still amounts to up to 4% less than the previous fiscal year.

In its April report, the IMF also stressed that if Pakistan manages to roll over the financial arrangements offered by China, Saudi Arabia and the UAE, it would be able to effectively improvise its debt sustainability status.

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