IMF Projects Rising Debt for Pakistan, Predicts Decline by FY2029

ISLAMABAD: The International Monetary Fund (IMF) has projected an increase in Pakistan’s general government gross debt, which is expected to reach 71.4% of Gross Domestic Product (GDP) during the current fiscal year (FY2025).

However, the IMF’s assessment, published in its Fiscal Monitor on Wednesday from Washington D.C., indicates that the government’s gross debt will decline in the following fiscal years, projected to reach 60.7% of GDP by FY2029. The report also highlights that the pension bill will increase by 0.1% of GDP from 2023 to 2030. In terms of net present value, the pension bill will rise by 6.7% of GDP between 2023 and 2030.

Healthcare spending is also expected to increase by 0.1% of GDP from 2023 to 2030, with a net present value increase of 4.1% of GDP over the same period. The gross financing needs are estimated at 22% of GDP for fiscal year 2024, with the debt-to-maturity period standing at 3.7 years.

The Fiscal Responsibility and Debt Limitation (FRDL) Act, approved and amended by the parliament, is expected to continuously breach the limit envisaged, bringing it down to 60% of GDP. The FRDL was enacted during the Musharraf-Aziz regime almost 18 years ago, but the debt has not been reduced to the desired limits. It is ironic that parliament has never raised any serious debate or taken stern action against the breach of the law.

The IMF’s Fiscal Monitor shows that the general government net debt will escalate to 65.6% of GDP during the current fiscal year (FY2025), up from 63.5% in the last financial year (FY2024) ended on June 30, 2024. Pakistan’s General Government Net Debt is expected to decline to 56.9% of GDP by fiscal year 2029.

The fiscal framework of the country is deteriorating mainly due to persistent fiscal imbalance, projected to hover around 6% of GDP during the current fiscal year (FY2025), compared to 6.7% of GDP for the last financial year (FY2024) ended on June 30, 2024. Under the IMF program, the fiscal deficit is projected to be reduced to 3% by fiscal year 2028, and to 2.8% of GDP by fiscal year 2029.

The primary balance, calculated after interest repayments, is expected to improve, standing at 2.1% of GDP in the current fiscal year 2025, up from 0.9% of GDP for the last financial year. The primary balance is projected to remain in surplus, up to 2% of GDP, until the end of FY2029.