Governments all over the world have been highly responsive in addressing the economic crisis created due to COVID-19 pandemic. The measures taken of rate and spending cuts seem to be effective but International Monetary Fund fears something bigger and unveiled.
One of the major factors that contribute to IMF concerns is the shocking debt figures which have exceeded the size of global economy. Even the deficits in the advanced economies increased to five times of their estimates before the Coronavirus pandemic. Increased debt figures around the globe; despite record low interest rates ring alarm for International Monetary Fund.
Fiscal Policy Chief Vitor Gaspar & Chief Economist Gita Gopinath from IMF addressed the same concerns when they said in a blog post that government spending will need to remain supportive and flexible until a safe and durable exit from the crisis is secured. They also indicated that massive fiscal response of $11 trillion is needed to support households and prevent bankruptcies due to business shutdowns.
Analysts also warn about a greater risk of derailing economic recovery and huge fiscal costs in the future. The warnings of IMF analysts is based on history; when after global crisis of 2008 many countries ceased their stimulus programs thinking that economies have stabilized but actually their decision resulted in sluggish economic recovery.
IMF analysts recommend improvement of progressive tax collection, where those with highest income pay more and also suggest elimination of fuel subsidies.
Pakistan’s Economic Situation
If we look at Pakistan’s economic situation in light of IMF concerns, Pakistan’s current deficit stands at $736 million for the first quarter of 2020 as compared to $661 million in previous quarter. Current account deficit is predicted to reach $4,000 million for the current quarter while for year 2020 figure is expected to be anywhere around $1,200 million as per Trading Economics.
As for tax collection government revenues decreased to PKR 4,900.70 billion in the year 2019 as compared to the figure of PKR 5,228 billion in 2018.
Currently the key interest rate stands at 7 percent with wide expectations of another cut of 100 basis points.
