IMF’s March meeting outcome to determine inflows for budgetary support

ISLAMABAD: Budgetary assistance from bilateral or multilateral credit agencies depend on the outcome of an upcoming meeting of International Monetary Fund (IMF) early next month, officials said on Saturday.

“The budgetary support lending from the World Bank and Asian Development Bank depends upon the IMF satisfactory report and government’s ability to keep foreign currency reserves held by SBP (State Bank of Pakistan) for over two months import bill,” one top official told The News.

The IMF’s executive board is scheduled to meet on March 5 in Washington DC for considering approval of report on Pakistan’s post program monitoring (PPM) in order to gauge economic health of the country. Other creditors will decide future budgetary support for Pakistan on the basis of the decision.

As the country is moving close to general elections the IMF report will be considered important to set the course of actions for Pakistan’s ailing economy.

In 2016, Pakistan successfully completed the IMF’s $6.7 billion extended fund facility loan program, but the country failed to undertake desirable structural reforms to boost exports, curtail imports, broaden tax base and overcome losses of cash-bleeding state-owned entities and energy sector that again turned the economy into crisis mode within just one and half year after the end of IMF program.

Pakistan and the IMF staff have revised macroeconomic projections for the current fiscal year after which Advisor to Prime Minister on Finance Miftah Ismail and Governor State Bank of Pakistan (SBP) Tariq Bajwa signed PPM report in mid February and allowed the IMF to release the report after getting approval from its executive board.

Pakistan and IMF agreed to keep budget deficit projection at over 5 percent of GDP for the current fiscal year of 2017/18 as against the target of 4.1 percent; last year, budget deficit stood at 5.8 percent. The federal government blamed provinces for the high deficit during the last fiscal year.

Budget deficit came at 2.2 percent for the first half of the current fiscal year. Nonetheless, the budget deficit if kept at 5 percent of GDP during the electioneering year would be considered as a miracle on the part of the incumbent regime because spending spree might grip the dwellers of finance ministries both at the centre and provincial levels during the last quarter of the ongoing fiscal year.

Pakistan also agreed with the IMF to keep development spending at around Rs800 billion to Rs850 billion in the current fiscal year instead of the actual allocation of more than Rs1,000 billion. On revenue side, the government expects that the FBR revenues will go close to the Rs4,000 billion mark, while there will be some slippages on non-tax revenue sides as the government will not receive reimbursed amount from US on account of coalition support fund and there may be undesirable collection on account of gas infrastructure development cess. The shortfall will be compensated from other avenues.

There will also be major challenges from current deficit front, which has already peaked to $9.2 billion in the first seven months of the current fiscal year, up staggering 48 percent year on year. The July-January current account deficit was equivalent to 3.1 percent of GDP. The SBP’s projection for the FY2018 current account deficit is between four and five percent.

A court has stopped government to collect regulatory duty payment, while non-tariff barriers have also failed to curtail imports so rising trade deficit has become a threatening challenge for the economy.

Early this month, Sindh High Court restrained the FBR from collecting regulatory duty imposed three months ago on more than 700 imported items. The government was expecting to save two to three billion dollars on the duties during the current fiscal year.

Though exports picked up more than 10 percent in the first half, they could not become even nearer to growth (18 percent) of imports. Pakistan, therefore, will have to manage its financing requirements in order to avoid depletion of foreign currency reserves. Foreign currency reserved held by SBP decreased below $13 billion and stood at $12.8 billion as of February 16, which could barely meet import requirements of just over two months.