Money Matters

Trouble ahead

Money Matters
By Mehtab Haider.
Mon, 07, 20

Reviving the stalled International Monetary Fund (IMF) programme might take a long time, because both Pakistan and the IMF staff have to agree upon a roadmap that convinces the fund’s executive board about Islamabad’s seriousness in undertaking crucial reforms post Covid-19 pandemic.

Reviving the stalled International Monetary Fund (IMF) programme might take a long time, because both Pakistan and the IMF staff have to agree upon a roadmap that convinces the fund’s executive board about Islamabad’s seriousness in undertaking crucial reforms post Covid-19 pandemic.

The IMF programme is must, keeping in view gross financing requirements of $29.3 billion in the current fiscal year, which cannot be fulfilled without the backing of the lender of the last resort. At a time when Islamabad has exhausted programme lending limits from other multilateral lenders such as the World Bank and Asian Development Bank, there is no other option but to keep the IMF programme afloat to get more programme loans from multilaterals.

However, it is no longer an easy task. Pakistani authorities are using the pandemic as an excuse to delay the IMF programme preferably till September. Some sources also claim that the Pakistan Tehreek-e-Insaf’s (PTI) core team would rather delay it till December 2020.

How much would they be able to defer the IMF programme is yet to be seen. For now, the Pakistani authorities are making last ditch efforts to convince a select group of reporters that there was no trust deficit between Pakistan’s economic managers and the IMF team.

The authorities consider it a feather in their cap that they were able to convince the IMF board to approve $6 billion Extended Fund Facility (EFF) programme on the basis of the highly ambitious tax collection target of Rs5,555 billion last year. However, later the IMF was convinced on the Federal Board of Revenue’s revised target of Rs4,803 billion on the eve of staff level agreement for completion of second review, prior to the Covid-19 outbreak. The government, sources said had to face an embarrassing situation as critics got an opportunity to malign the performance of the government on not meeting the tax collection target.

Questions at this point have also risen about the government’s decision to put a new FBR chairman in place for a three-month period. Critics ask how the new chairman would build up a team to perform in an uncertain environment. Questions have also been raised on the appointment of tainted tax officials on key positions.

On Friday evening, the government reshuffled key positions in the FBR, and put in charge many people, who were superseded twice for getting promotions from grade 19 to 20 within the revenue body’s files. This shows that FBR’s workings have turned pathetic under the tenure of the PTI regime that came into power to root out corruption and making appointments purely on merit.

For revival of the IMF programme that was halted in February 2020, Pakistan would have to share with the Fund staff a tangible plan for mobilisation of tax revenues, adjusting electricity tariff and erasing the monster of circular debt besides proposing amendments into the State Bank of Pakistan (SBP) and NEPRA Acts. Without having clear cut macroeconomic targets and reform plans, the IMF programme cannot be revived.

Within the PTI ranks, there are ongoing discussions as to what should be the immediate requirements to revive the stalled IMF programme. If they fail to come up with those requirements, they should go in wait mode, because the IMF programme would help maintain fiscal discipline.

The cost of power sector subsidies were reduced 60 percent in the budget 2020-21, and the targeted subsidies mechanism would be introduced within the ongoing month. There is also no justification as to why the influential were given subsidy on 300 units of power. Those subsidies too need to be removed.

The Ministry of Finance has given a timeframe of six months to Military Accounts for bringing all pensioners’ from manual to direct credit system (DCS). All pensioners have not been converted from manual to DCS so far, raising apprehensions that there might be a phenomena of ghost pensioners within the system. The military accountant general has indicated that they were launching one pilot project at Kasur and then it would be replicated into all regiments.

The top most official of Finance Ministry dispelled this impression that “trust deficit” existed with the IMF, arguing that there was complete understanding with the Fund staff and this transitory phase of ‘deviation’ from the IMF programme post Covid-19 would be short-term. He said Pakistan would strive to bring all multilateral donors including IMF, World Bank and Asian Development Bank on one page regarding the roadmap for mobilisation of tax revenues, and strategy for fixing power sector problems along with a course to erase the monster of circular debt.

The country possesses a noisy democracy and its governance structure was quite complex and difficult, but the government was making efforts to run the economy on the basis of transparency and fair play. However, top officials conceded that there were areas where the government made slow progress such as fixing the problem of cash bleeding state owned enterprises and bringing reforms into the FBR.

Without sharing any exact timeframe for reviving the stalled $6 billion IMF programme, top officials of the Finance Ministry said that the PTI-led government would have to come up with revenue mobilisation plan, fixing power sector pricing mechanism, and a tangible plan to overcome circular debt that had peaked to Rs2.2 trillion after outbreak of Covid-19 pandemic.

The SBP and NEPRA Acts will have to be amended with the approval of the Parliament to grant autonomy to these two regulators.

Through NEPRA proposed amendments, the IMF wants to grant power for determination of tariff with automatic adjustment without seeking approval of the government. The government will have to indicate how much subsidy it intends to provide otherwise the tariff will be automatically adjusted.

The rationalisation of subsidy for electricity sector would be finalised, as the exact mechanism would be unveiled within the next 10 to 15 days.

The prime minister put raising tariff for K-Electric on hold, but no specific timeframe was finalised. It was discussed that tariff should not be hiked for two months where power outages were at peak in Karachi.

The budget deficit would be curtailed at 9.5 to 9.6 percent of GDP for the last fiscal year 2019-20 that ended on June 30, 2020. Although, the fiscal accounts had not yet finalised, the budget deficit would not escalate to go into double digit anymore and would be restricted in the range of over 9 percent of GDP.

The stimulus package of Rs1.24 trillion resulted in raising the budget deficit, as the Finance Ministry managed to keep the deficit at 5.2 percent of GDP on the basis of its 9 months performance. However, after the outbreak of coronavirus the realities on the economic front changed altogether, forcing the government to on a spending spree to ward off the negative impacts of Covid-19.

There is no easy way forward. Prime Minister Imran Khan led PTI regime has to put its act together to avoid derailment of the IMF programme.

The writer is a staff member