ISLAMABAD: The World Bank has estimated major slippages in the targets of fiscal deficit, debt and external sector agreed by Pakistan with the International Monetary Fund (IMF), emphasising that Islamabad should not abandon the prudent path despite worst floods since independence.
The biannual Pakistan Economic Update of the World Bank suggested that the international lenders were not in a mood to give any substantial concessions to Islamabad on the agreed conditions, particularly the increase in electricity prices.
The report showed that the primary budget balance would be negative by 3% of gross domestic product (GDP) against the IMF’s target of 0.2% surplus, marking the biggest slippage. The debt-to-GDP ratio will slip to 71.7% by the end of current fiscal year against the earlier IMF forecast of 68.2%.
Importantly, the current account deficit is projected at 4.3% of GDP, or around $19 billion, by the World Bank, against the IMF’s earlier estimate of 2.5%, increasing the country’s foreign loan requirement.
IMF programme targets could undergo major changes during the upcoming visit of a fund’s mission, tentatively planned from October 26 to November 4.
Inflation would spike while the fiscal situation would worsen, revenues would fall and tax base would shrink, said Derek Chen, senior economist at the World Bank. “We expect fiscal policy to remain expansionary,” said Chen.
Read more: U.S. aims to hobble China’s chip industry with sweeping new export rules
Projections have been made on the assumption that Pakistan will stay in the IMF programme, according to the senior economist.
In case, Pakistan’s IMF programme again goes off track, the numbers can further deteriorate due to the fiscal and monetary indiscipline.
The World Bank released the report the day Moody’s credit rating agency jolted Pakistan by giving it junk rating of Caa1, which is slightly above default rating.
Caa1 rating means that Pakistan’s debt is “judged to be of poor standing and is subject to very high credit risk”.
