Pakistan Needs to Keep Getting Massive Loans/Grants: IMF

The International Monetary Fund (IMF) has projected Pakistan’s external financing needs to stay large while pressures on exchange rates and international reserves remain significant.

The lender in its Middle East and Central Asia Economic Outlook noted that external financing needs will remain large, and reserve coverage is forecast to remain precarious in several countries, averaging about 70 percent of short-term external debt in Egypt, Pakistan, and Tunisia.

IMF also projected increased public sector gross financing needs for Pakistan, hitting 21 percent of GDP by 2024 (over  Rs. 22 trillion).

The MENA economies and Pakistan are expected to go through a soft patch this year, reflecting tight policies in many countries to restore macroeconomic stability, OPEC+-related curbs on oil production, and the fallout from the recent deterioration in financial conditions.

In Pakistan, inflation is projected to more than double to about 27 percent this year, reflecting broadening price pressures. For oil exporters, inflation is forecast to remain low in most countries.

The lender was of the view that MENA EM&MIs and Pakistan are expected to undertake meaningful fiscal consolidation, including subsidy reforms (Egypt, Morocco, Pakistan, Tunisia), with primary fiscal deficits projected to decline by about 3 percentage points of GDP on average between 2022 and 2025, in the context of IMF supported programs for some countries (Egypt, Pakistan) or announced programs (Tunisia).

IMF said tighter financial conditions will partly offset this fiscal effort, with interest expenses for EM&MIs projected to increase by about 1 percentage point of GDP on average over the same period. Overall, public debt-to-GDP ratios should decline in the medium term in most EM&MIs, further reflecting the erosion of the real value of public debt from persistent inflation (Egypt, Pakistan, Tunisia) and growth recovery.

Meanwhile, the lender warned that continued reliance on domestic financing will risk exacerbating the sovereign-bank nexus further, given the very high exposure of banks to sovereign debt in some MENA EM&MIs and Pakistan (more than 50 percent of bank assets at the end of 2022).

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