Question

Does fiscal deficit still exist in Pakistan? If yes, then suggest measures to reduce it?

Answer 1

The World Bank has warned Pakistan that its increasing fiscal deficit could put macro-economic management at risk and said it needs around USD 17 billion to cover the rising current account deficit and debt payments in the year 2018. “Pakistan is facing headwinds in the external sector and a rising fiscal deficit that could put macro-economic management at risk,” the Bank said after it concluded talks with a visiting Pakistani delegation on the sidelines of the annual meetings of the International Monetary Fund and the World Bank.

“This has resulted in increased external financing needs of 5-6 per cent of GDP in financial year 2018, or around USD 17 billion, to cover rising current account deficit and debt payments,” the bank said.

The Pakistani delegation met with a World Bank team led by Annette Dixon, Vice President, South Asia region.

On the macro-economic outlook, the discussions acknowledged that Pakistan has done well in stabilising its economy over the past four years, and in achieving 10-year high growth of 5.3 per cent in financial year 2017, a statement said.

Following the talks, the bank said, “it would continue to support” Pakistan to implement broad economic reforms and address current risks towards achieving its development aspirations.

The Pakistani delegation included Shahid Mahmood, Secretary, Finance Division, Tariq Bajwa, Governor the State Bank of Pakistan, and Arif Ahmed Khan, Secretary of the Economic Affairs Division.

The government claims that during fiscal year 2016-17, Pakistan’s fiscal deficitdecreased from 4.8 percent to 4.2 percent of GDP. To ascertain these claims, while the ministry of finance has presented some macro level analysis, the government has been unable to address some of the very basic and essential questions that are central to the deficit’s rise or fall. For instance, the Economic Survey containing the financial details about the country’s fiscal deficit doesn’t explain how Pakistan was able to reduce its long-standing fiscal deficit and balance of payments crisis. Moreover, the survey doesn’t shed light on the question of whether the loans or money taken from China were incorporated into the fiscal deficit assessment.

Apparently the government’s claimed fiscal deficit decrease only deals with money taken from Western lenders, particularly the International Monetary Fund (IMF). In addition, the government has said that it doesn’t need any more loans from the IMF, for the country’s economy has now entered the phase where it can sustain its own economic burden. Such claims, however, seem puzzling, for the government has not presented any logical reasoning that may explain that Pakistan has not only decreased its multi-billion dollar deficit in such a short time.