IMF reiterates demand of fiscal consolidation ahead of staff level visit

KARACHI: The International Monetary Fund (IMF) wants Pakistan to meet development needs from tax revenue rather than debt accumulation as its lending program nears the first quarterly performance review by year-end with the Fund’s team expected to visit the country next week on a potential fine-tuning mission.

IMF Director Communications Gerry Rice sent this message to Pakistan authorities during an online media briefing late on Thursday night.

“One of the key elements of the program that the IMF is supporting in Pakistan… is the need to mobilise domestic tax revenue to fund much-needed social and development spending while placing debt on a firm downward trend,” Rice said. “This was actually something that our acting Managing Director David Lipton emphasised in his recent meeting a short time back with Prime Minister Imran Khan.”

Lipton met with Khan in Washington DC three weeks after the loan program’s approval in July. “I highlighted the need to mobilise domestic tax revenue now and on into the future to provide reliably for needed social and development spending, while placing debt on a firm downward trend,” Lipton was quoted as saying in a statement then.

In earlier July, the IMF’s executive board approved a 39-month extended fund facility for Pakistan for an amount of $6 billion to support the authorities’ economic reform program, help them reduce economic vulnerabilities and generate sustainable and balanced growth. The executive board’s approval allowed for an immediate disbursement of about $1 billion. The remaining amount is to be phased over the duration of the program, “subject to four quarterly reviews and four semi-annual reviews”.

“A decisive fiscal consolidation is key to reducing the large public debt and building resilience,” IMF said in a statement then.

It wanted primary deficit to drop at 0.6 percent of GDP in the current fiscal year of 2019/20 from an estimated 1.8 percent last fiscal year. That seems challenging for the existing economic team considering widening fiscal deficit that peaked at 8.9 percent last fiscal as opposed to the 7.2 percent target.

Analysts said the country might have no option other than to seek a ‘waiver’ from the Fund on unmet fiscal consolidation target. The upcoming IMF team is believed to have this aspect in its agenda, they added.

“We expect an IMF team to be in Pakistan in the next few days, including our Director for that area, Jihad Azur will be there,” Rice said without explaining any reason behind the visit. Ministry of finance, however, said the upcoming IMF mission is a staff level visit that had been planned much earlier.

“The IMF-supported program will be monitored and reviewed according to a calendar of quarterly reviews,” the ministry said in a statement last week. “The first one is scheduled to take place at some point in December.”

The finance ministry further dispelled an impression that the IMF program is being renegotiated. “The government of Pakistan remains firmly committed to implement the policies and reforms spelled out in the IMF-supported program,” it said.