Pakistan finance minister calls for urgent debt management reforms

ISLAMABAD – Pakistan’s Finance Minister Dr. Shamshad Akhtar highlighted the critical need for comprehensive fiscal reforms at an Islamabad event today, stressing that managing the country’s unsustainable debt levels should top the national reform agenda. Speaking at a Sustainable Development Policy Institute gathering, Akhtar detailed the challenges posed by high servicing costs, which have consumed three-quarters of the Federal Board of Revenue’s (FBR) revenue in FY2023, and underscored the urgency given the difficulties in securing foreign loans and being priced out of international markets.

Akhtar noted that despite assumptions of sustainable debt under an IMF program, Pakistan faces increased vulnerability to global shocks, such as commodity price rises and tighter liquidity conditions. She pointed out that current fiscal policies are untenable, with significant revenue gaps and unproductive spending compounded by a substantial shortfall in climate funding. The IMF has projected that public debt may rise to Rs81.8 trillion or 77.3% of GDP by June 2024, necessitating enhanced resource mobilization and curbed losses from state-owned enterprises (SOEs).

In addressing external debts, Akhtar mentioned that while multilateral agency debts are non-negotiable and commercial debts involve complex negotiations with numerous stakeholders, bilateral debts have seen some relief post-COVID-19, including a $2.4 billion restructuring by the Chinese Exim bank under G-20 initiatives.

Despite these challenges, Akhtar highlighted signs of economic recovery with GDP growth projected at up to 3% for FY2024 according to Pakistan Bureau of Statistics (PBS) data, driven by improved agricultural output and manufacturing activity. She also pointed to Pakistan’s potential growth trajectory as estimated by the World Bank—a $2 trillion economy by 2047—and emphasized the need for lowering the tax-to-GDP ratio currently at 10%.

To address these issues, Akhtar affirmed Pakistan’s commitment to an IMF staff-level agreement essential for macroeconomic stability and mentioned ongoing reforms aimed at separating tax policy from administration duties. She also spoke of engaging provinces in expenditure sharing discussions for social welfare schemes like the Benazir Income Support Programme (BISP) as well as Public Sector Development Programme (PSDP) development projects.

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