[🇵🇰] Economy outlooks for 2024

[Old School]

Deadly Pakistan attacks threaten China economic ties​

A string of deadly attacks on Chinese interests in Pakistan is threatening to slam the brakes on Beijing's multibillion-dollar investment in the country and further escalate security demands on Islamabad, analysts say.

Five Chinese engineers and their Pakistani driver were killed in a suicide attack Tuesday in Besham, about 270 kilometres northwest of the capital. The victims were on their way to the Dasu hydropower project, a China-backed 4,320-megawatt electricity generation development. Construction work on the $4.2 billion project was suspended in the wake of the violence.

The Besham incident was the third deadly attack on or near Chinese interests in just one week.

The Gwadar Port Authority Complex and a naval air base were separately targeted in southwestern Pakistan last week by separatists who see Chinese nationals as exploiting the region's resources. Gwadar is a cornerstone of the China-Pakistan Economic Corridor (CPEC), a $50 billion component of the Belt and Road Initiative (BRI), Beijing's globe-spanning infrastructure push.

 

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China and Saudi Arabia should bail Pakistan out.

 

[Old School]

Finance Minister Aurangzeb hoping for new IMF deal by end of fiscal year​

Finance Minister Muhammad Aurangzeb on Friday expressed hope for reaching a Staff-Level Agreement (SLA) with the International Monetary Fund (IMF) by the end of the fiscal year (June 30), adding that there have not been any final discussions with the Fund yet.

The $3 billion standby arrangement with the global lender expires on April 11, and the two sides reached a staff-level agreement regarding the disbursal of the final tranche of $1.1bn last week. The minister has previously voiced the government’s intention to seek “larger and longer” bailout package from the IMF.

During the gong ceremony at the Pakistan Stock Exchange, the finance minister elaborated that the details of the deal would be discussed during the spring meetings in Washington where the delegation led by him would go around “14th to 15th April”.
The finance minister elaborated that they had requested to “enter a larger and longer programme” during the SLA discussions to which the IMF was receptive, adding that the size of programme hasn’t been decided yet.

 

[Old School]

[H2]It seems that some circles are trying to undermine finmin's role in the cabinet[/H2]
FINANCE MINISTER Muhammad Aurangzeb wants to conclude a larger, medium-term deal with the IMF before the current fiscal year is out. He is also hopeful of getting to the finish line in time. Speaking to reporters at the PSX on Friday, he expressed hopes of reaching a staff-level agreement for the new programme with the Fund by end FY24.

According to him, the lender has been "very receptive" to Pakistan's request for a larger programme in recent communications. While there was no final decision yet, he said, "it is our desire that by the time we wrap up this fiscal year an [agreement] is reached". He has repeatedly argued that Pakistan requires IMF discipline for at least the next three years to "execute" the long-delayed structural changes in the economy.

Apparently, the finance minister has also earned the goodwill of the lender, and the upcoming talks on the new programme on the margins of the spring meetings of the Bretton Woods institutions will, hopefully, pave the way for early finalisation of the new loan programme.

At a time when the minister needs the government's full backing to pull off the crucial deal and implement tough economic reforms over the next several years, it seems that some circles are trying to undermine his role in the cabinet. Prime Minister Shehbaz Sharif's decision to name Foreign Minister Ishaq Dar to the all-important Council of Common Interests and keep Mr Aurangzeb out of it looks like an attempt to contain his role in decision-making.

Sadly, this was not the only occasion, since the formation of the new government a month ago, that he has been sidelined. Some days ago, Mr Sharif, in a break from tradition, decided to chair the ECC, the top policymaking forum. It was only after widespread criticism that he yielded the position to the finance minister. Likewise, the latter's role in the privatisation process was also diminished when Mr Dar was appointed head of the Cabinet Committee on Privatisation.

In the CCI's case, what exactly is the foreign minister expected to contribute to the council's deliberations? On the other hand, the presence of the finance minister in the CCI — the top constitutional forum mandated to discuss and decide on matters and disputes related to the federation and the provinces — is of utmost importance at this moment because the implementation of several IMF programme goals and policy reforms hinge on the active involvement of the federating units.

There is no better forum than the CCI to enlist the buy-in of the provinces on the IMF programme and reforms. It can only be hoped that sense will prevail and the prime minister will replace Mr Dar with his finance minister in the CCI in the larger interest of the country.

 

[ghazi]

[H2]Fiscal gap to widen to 7.4pc of GDP[/H2]

Khaleeq Kiani
April 18, 2024

ISLAMABAD: Projecting stagnant tax-to-GDP ratios over the next five years, the International Monetary Fund (IMF) on Wednesday estimated Pakistan's fiscal deficit — the gap between total resources and expenditures — for the current fiscal year at 7.4 per cent of GDP, almost 1pc higher than 6.5pc target set by the federal government.

On the positive side, however, the fund anticipates a gradual decline in debt-to-GDP ratios and general government expenditures over the medium term. Also, the primary fiscal balance has been estimated to remain 0.4 to 0.5pc of GDP over the next five years, compared to a 0.9pc primary deficit in FY23.

The centre had estimated the overall fiscal deficit at Rs6.9 trillion for the current fiscal year (6.53pc of GDP) on the anticipation that provinces would offer Rs600bn surplus to scale down the federal deficit otherwise estimated at Rs7.5tr or 7.1pc of GDP. The IMF had previously projected the fiscal deficit at 7.6pc of GDP in October last year but has since revised it to 7.4pc, apparently based on the latest data shared by the government last month as part of a quarterly review.

In its fiscal monitor released on Wednesday as part of spring meetings of the IMF and the World Bank currently in progress in Washington, the fund forecast fiscal deficit declining 7.3pc of GDP in FY25 — significantly higher than its 6.9pc forecast made in October last year. In the same direction, the IMF made upward adjustments in deficit estimates for Pakistan.

IMF says revenues to stay stagnant despite falling expenditures in five years
​

In doing so, the fund forecast a 5.8pc fiscal deficit for FY26, followed by 5.1pc in FY27 and staying at 4.6pc in FY28 and FY29. In October last year, the IMF predicted Pakistan's fiscal deficit to be 6.9pc in FY25, 5.4pc in FY26, 4.4pc in FY27 and 4.4pc in FY28.
The fiscal monitor for April 2024 also put primary budget surplus — the difference between revenues and expenditures
excluding interest payments — at 0.4pc of GDP for FY24, followed by 0.5pc in FY25 and then staying stable at 0.4pc over the next three consecutive years and again at 0.5pc in FY29. In October last, the IMF had pitched a primary deficit for FY23 at 1.2pc of GDP compared to 0.5pc claimed by the government, which turned out to be a 0.9pc deficit, according to the latest statement of the IMF.

Referring to the revenue side, the IMF projected general government revenue to be 12.5pc of GDP for the current fiscal year ending June 30, up from 11.4pc last year. The fiscal monitor predicts general government revenue at 12.4pc for the next two fiscal years, FY25 and FY26, 12.3pc in the following two years, FY27 and FY28, and then back to 12.4pc in FY29.

The fund has not changed its revenue-to-GDP ratio estimates for all these years.

On the expenditure front, the fiscal monitor estimates general government expenditure at 19.9pc of GDP for FY24, significantly higher than 19.2pc in FY23. It then anticipates a gradual yearly decline over the medium term as debt servicing costs ease. The general expenditure will drop to 19.6pc in FY25), followed by 18.1pc in FY26, 17.5pc in FY27, 17pc in FY28 and 16.9pc in FY29. The fund has slightly revised its previous forecasts about the expenditure to GDP ratio by 0.2 to 0.3pc for these years.

Falling govt debts

Likewise, the IMF expects the gross government debt to ease down to 71.8pc of GDP at the end of the current fiscal year from 77.1pc last year. It anticipates a declining trend, but more is needed to eliminate vicious violations of the Fiscal Responsibility & Debt Limitation Act (FDRLA), which seeks to ensure that debt always remains below 60pc of GDP.

The IMF projects the gross government debt-to-GDP ratio to come down to 69.4pc next year, followed by 68.4pc in FY26 and 66.8pc in FY27. The debt is expected to drop to 64.8pc in FY28 and 63.1pc in FY29.

The fund noted that Pakistan would be among the economies with relatively high deficit levels and projected to undergo rapid fiscal consolidation over the medium term.
Published in Dawn, April 18th, 2024