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June 13, 2019

$5 bn deposits from KSA, UAE

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June 13, 2019

ISLAMABAD: Pakistan has secured special permission of the IMF for converting $5 billion deposits obtained from friendly countries including Saudi Arabia and UAE for utilising it as budgetary support in the next fiscal year 2019-20.

This No Objection Certificate (NOC) from the IMF will help Islamabad create fiscal cushion to arrange financing of yawning budget deficit of 7.2 percent of GDP, equivalent to Rs3,152 billion, for the next fiscal year 2019-20. Under the IMF programme, the budget deficit is considered as sacrosanct target and its financing also becomes a headache for the economic managers owing to variety of reasons. “The government also envisages that the IMF loan of Rs357.450 billion will also be available for the budgetary support in the coming financial year 2019-19,” the budget document for 2019-20 shows. In totality the government will have a cushion of Rs1,107 billion to arrange financing of the budget deficit. Under the IMF programme, the overall budget deficit and its financing become a major stumbling block for running the programme reviews successfully because the Fund restricts to borrow from the central bank and asks the country’s economic managers to shift their reliance on other avenues including banking sector and getting budgetary supports from external avenues.

According to the budget documents, Finance Ministry has shown that budgetary support of Rs750 billion would be available from friendly countries in the next fiscal year starting from July 1, 2019. When the top officials of government were contacted on Wednesday and inquired about Rs750 billion provision of budgetary support from the friendly countries shown through the budget documents, they said the IMF has granted No Objection Certificate (NOC) for converting deposits of $5 billion from Saudi Arabia and UAE for utilising as budgetary support in the coming financial year. In another positive development, the IMF also allowed to utilise certain portion of its bailout package for budgetary support. The IMF usually provides balance of payment (BoP) support and barred from using its resources for meeting requirements of budgetary support. Last time, the IMF had permitted to use certain amount of its assistance as budgetary support in the aftermath of super floods in 2010 when it had devastated many parts of the country under the PPP-led regime. This scribe sent out a query to the IMF office based in Islamabad but got no response till the filing of this story. However, the sources said that the Fund understands the fiscal constraints being faced by Islamabad so it allowed gradual fiscal adjustments over the period of three years. The IMF is more concerned about primary deficit that will be brought down to 0.6 percent of GDP in the next fiscal year.

When contacted former Secretary Finance and renowned economist Dr Waqar Masood said the focus of fiscal adjustment was shifted from overall budget deficit to primary deficit where the government committed to restrict the budget deficit to the tune of 7.1 percent of GDP for the next fiscal year. It shows the primary deficit after excluding interest payment was expected to remain around over 2 percent of GDP. Now under the IMF programme this primary balance will have to bring at 0.6 percent of GDP so the government made fiscal adjustments of Rs600 billion through taxation measures and curtailment of expenditure. However, he said some revenue projections might not materialise in the outgoing fiscal year including FBR’s revised collection target of Rs4,150 billion for 2018-19 ending on June 30, 2019, he concluded.

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