Delay in IMF deal affects budget preparation

ISLAMABAD: The delay in reaching an agreement with the International Monetary Fund (IMF) has affected the preparation of the budget for the upcoming fiscal year, sources told Geo News Saturday.

The Budget Strategy Paper (BSP), which was scheduled to be approved by the federal cabinet in the second week of April, has not been prepared due to the prevailing political and economic uncertainty.

The schedule for deciding the ceiling for development funds and current expenditure for the fiscal year 2024 has also been affected, while a meeting of the Annual Plan Coordination Committee (APCC) is yet to be held.

Meanwhile, a meeting of the National Economic Council is scheduled to be held in the first week of May.

Sources said the budget documents would be finalised by the last week of next month for approval by the cabinet. The government plans to present the budget for the upcoming year to the cabinet as well as parliament in the first week of June.

It is expected that the new budget would be “dictated” by the IMF, the sources said, adding that the Washington-based lender’s approval would be sought for tax revenues, fiscal deficit, public sector development programme funds and key targets.

The government has been in talks with the IMF since November for the release of a desperately-needed economic bailout, without which the country risks default.

The latest loan tranche, if approved, would disburse over $1 billion for Pakistan and unlock inflows from other multilateral institutions. The amount is part of a $6.5 billion Extended Fund Facility (EFF) agreed upon in 2019. Pakistan had to complete actions demanded by the IMF, such as reversing subsidies in power, export and farming sectors, hikes in the tariffs of energy and fuel, and a permanent power surcharge, among other measures. These steps included jacking up its key policy rate to an all-time high of 21%, adhering to a market-based exchange rate, arranging external financing and raising more than Rs170 billion ($613 million) in new taxes.

However, despite these measures, a staff-level agreement is yet to be signed with the Fund. The current IMF programme is going to expire on June 30, 2023, but the ongoing 9th Review has not yet been completed.

The 10th Review became due on February 3, 2023, while the last and final 11th Review would become due on May 3, 2023, i.e. in less than a week.

No one knows how both sides will proceed further as the 9th Review could not be concluded despite meeting all major conditions.

However, former finance minister Miftah Ismail, among others, has said that the country would need to enter a new programme with the international lender immediately after the current one ends due to its worsening economic situation.