ISLAMABAD - The International Monetary Fund (IMF) has projected that Pakistan’s net debt would reach 64.1 per cent of the GDP during ongoing fiscal year 2013-2014.

According to the IMF report ‘Fiscal Monitor Report (FM) 2013’, Pakistan’s gross debt would increase to 66.6 per cent of the GDP during current financial year, which would decline to 56.9 per cent in 2018. The report projected that Pakistan’s budget deficit would reach around 7.5 per cent of the GDP during ongoing fiscal year, which would reduce to 3.5 per cent of the GDP by 2018.

The report stated that government’s expenditures are higher than the revenue generated by the country.

The government’s expenditures are projected at 20 per cent of the GDP by 2014, and would be slashed to 18.7 per cent by 2018. Meanwhile, the county’s revenues are projected at 14.4 per cent of GDP, which would further increase to 15.2 percent by 2018.

The report further stated that constitutional constraints can reinforce the problems-restrictions dating back decades, and now making no economic sense, are key obstacles to developing the VAT in Pakistan.

Meanwhile, IMF’s World Economic Outlook stated that Pakistan’s newly elected government has a mandate to tackle large fiscal and external deficits, which will initially weigh on growth.

 In most countries, inflation remains elevated, although it has moderated recently, given decreasing global food and energy prices.

In Pakistan, past currency depreciation and reduced energy subsidies will likely result in higher inflation.

World Economic Outlook stated that unemployment rate in Pakistan would increase to 6.9 per cent in 2014 from 6.5 percent of the ongoing year.

According to the IMF monitor report, countries with high levels of deficit and debt and large gross financing needs (including Egypt, Jordan, Morocco, and Pakistan) are exposed to shocks and swings in market sentiment and thus must take early decisive steps to safeguard against adverse debt dynamics and bolster credibility. Gross financing needs in advanced economies, although still large, have stabilized at about 221/2 percent of GDP. They are set to rise in emerging market economies in 2013-14 relative to previous projections, mainly driven by higher levels of maturing debt. They are particularly large (exceeding 20 per cent of GDP) in Egypt, Jordan, Hungary, and Pakistan, reflecting short maturities and high deficits.

The monitor report further proposed that reforms efforts must also take into account the governmental structure in which a country operates, as well as its institutional capacity. The political system may generate strong status quo biases.

Fiscal federalism can create obstacles to the implementation of tax reform, both through politics (given the large number of players with different interests at stake) and for technical reasons: the difficulty of operating sub-national VATs (because it is hard to remove tax from interstate trades without border controls) has been a key obstacle to establishing coherent VATs in Brazil, India, and the United States.