IMF Projects Declining PSDP, Rising defense Spending

ISLAMABAD: Amid improving fiscal space, the International Monetary Fund (IMF) has projected a declining Public Sector Development Program (PSDP), rising defence spending and generally stabilising interest payments from the current year onwards through the fiscal year 2030.

IMF projections show that interest payments for the last fiscal year (FY25) were originally estimated at 7.7 per cent of GDP but ended at 7.8pc. For the current year,the Fund has revised its estimate to 6.5pc of GDP from 6.7pc in view of lower policy rates.

For the next fiscal year (FY27), markup payments are estimated to drop further to 5.9pc of GDP, to be followed by 5.2pc of GDP in FY28, 5.1pc in FY29 and finally settling at 4.8pc in FY30 amid falling policy rates and resultant lower debt payments.

In absolute numbers, interest payments are estimated to slightly decline to Rs8.225 trillion during the current year, down from Rs8.88tr at the close of FY25. This would remain almost static around Rs8.2tr in FY27 and FY28 and then increase to Rs8.8tr and Rs9.3tr in FY29 and FY30.

Lender projects interest payments to ease through FY30 as policy rates fall

The national economy, measured by nominal GDP, has been estimated at Rs126tr for the current year, Rs140.7tr next year, Rs156.5tr in FY27, Rs174tr in FY29 and then Rs194tr in FY30.

But despite thes improving debt servicing-to-GDP indicators,PSDP would continue to struggle both in absolute numbers and as a share of GDP.

based on detailed interactions with the government as part of the second review of its $7 billion Extended Fund Facility, the IMF saeid the PSDP expenditure, originally estimated at 0.9pc of GDP in FY25, had been contained to 0.7pc to make up for the revenue shortfalls. The PSDP has been estimated to stay unchanged at 0.7pc for the current year.

Alarmingly, the PSDP has been projected to fall further to 0.6pc of GDP next year and then stay unchanged.