The International Monetary Fund (IMF) has projected an increase in the government gross debt for Pakistan from 87.2 percent of Gross Domestic Product (GDP) in 2020 to 87.7 percent in 2021.
According to the IMF report, “Fiscal Monitor, a fair shot,” the net debt for Pakistan is also projected to increase to 80.7 percent of the GDP in 2021 against 79.6 percent in 2020.
The government revenue is projected at 15.8 percent of GDP for 2021 and 17 percent for 2022 against 15.1 percent during the same period of 2020. The Fund has projected government primary balance at -1.0 percent for 2021 against -1.7 percent in 2020.
Further, the government’s overall balance is projected at -7.1 percent for 2021 against -8 percent in 2020. The report has projected government expenditure to decrease to 22.9 percent of GDP in 2021 and 22.5 percent in 2022 compared to 23.1 percent in 2020.
According to the report, the country’s debt to average maturity in 2021 is estimated at 35.6 percent of GDP. There would be a total financing need of about 35.9 percent of GDP in 2021.
The report further stated that one year into the COVID-19 pandemic, lives lost are approaching three million people, and the number of new daily cases is still elevated, at about half a million. Lockdowns, losses of employment and income, setbacks in the education of children, disruptions to routine health services, reversals in the downward trends of poverty, and food deprivation are among the consequences.
The pandemic has had a disproportionate effect on poor people, youth, women, minorities, and workers without a college degree, or in low-paying jobs. The response of fiscal policy has been unprecedented in speed and size. In the COVID-19 emergency, governments used the budget promptly and decisively.
In the last twelve months, countries have announced $16 trillion in fiscal actions. Fiscal actions have enabled health systems and have provided emergency lifelines to households and firms. By doing so, fiscal policy has also mitigated the contraction in economic activity.
Indeed, economic growth surprised, on the upside as 2020 unfolded, and growth forecasts for 2021 have been revised up as well. Gradually, economies and societies have improved their ability to cope with the pandemic.
At present, the evolution of COVID-19 and its fallout on economic and social developments remain highly uncertain. Policies must remain agile and respond flexibly as the situation may require. The balance between supporting people and firms in the emergency and facilitating a resilient, sustainable, and inclusive growth through economic transformation should evolve and adapt to the evolution of COVID-19 and its consequences.
COVID-19 is leaving behind complex legacies that will need to be tackled. First, the amount of financial support in 2020 was much larger than the historical norm for business cycle fluctuations. That was appropriate because COVID-19 is a health emergency. But these measures were expensive and contributed to reaching historically high debt levels.
In a context of historically low-interest rates, countries with stronger buffers, better access to finance, or both were able to deploy larger fiscal support.
Going forward, rebuilding buffers and dealing with legacies is crucial for resilience in the event of further shocks. Medium-term frameworks and better targeting will be key for building fiscal space and better confronting trade-offs such as providing support now and providing insurance against future emergencies.