IMF forecasts wider Pakistan fiscal deficit

The International Monetary Fund (IMF) expects Pakistan’s 2011/12 fiscal deficit to widen to 6.5 percent of gross domestic product, blowing past government estimates, it said in a report posted on its website on Wednesday. The government is targeting a deficit of four percent, but many analysts also expect the gap to be much higher. In a Regional Economic Outlook, the IMF also forecast GDP growth of 2.6 percent in the fiscal year ending in June 2012, compared with the government’s target of 4.2 percent.
The fund cited the devastating floods of 2011 and violence in the commercial hub, Karachi. It expects inflation to average 13 percent compared with the government’s target of 12 percent. Pakistan’s fiscal deficit was 5.9 percent in 2010/11 and 1.1 percent of GDP for the three months ending September 30, a Finance Ministry official told Reuters this month. Massive energy subsidies are one of the reasons for the swelling deficit but Pakistan has so far shown little interest in cutting these, as also demanded by the IMF. The widening deficit could threaten its economic stability and hit its sovereign ratings, and the IMF has pushed Pakistan to narrow the gap by eliminating subsidies and increasing its tax-to-GDP ratio, one of the lowest in the world. Massive energy subsidies are one of the reasons for the swelling deficit but Pakistan has so far shown little interest in cutting these. In 2008, Pakistan and IMF agreed on a 3-year loan package worth $11 billion.