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September 21, 2019

Inflation to dip, risks still there

Top Story

September 21, 2019

ISLAMABAD: The International Monetary Fund (IMF) has asked Pakistan to avoid repetition of one-off factors that escalated the worse than expected budget deficit, in the last fiscal and now it should not jeopardise the current fiscal year’s targets.

“The IMF staff and Pakistani authorities have analysed the worse than expected fiscal results of FY2018/19, which were partially the result of one-off factors and should not jeopardize the ambitious fiscal targets for FY2019/20,” the IMF stated in a press statement issued here on Friday. Pakistan’s budget deficit had escalated to 8.9 percent of GDP equivalent to Rs3,444 billion on June 30, 2019 against the envisaged target of 7.2 percent of GDP presented on June 10 on the eve of budget before Parliament. It’s breach of the privilege of Parliament that someone goofed up somewhere as described by the Chairman National Assembly Standing Committee Asad Umar as parliamentarians had demanded a probe to fix responsibility for hiding facts from the Parliament.

Within a period of 20 days, the budget deficit escalated beyond Rs800 billion. It raises many questions about the capacity of economic team on estimation of revenue and expenditure figures with such a widening gap. The primary deficit had gone up to 3.5 percent of GDP and the government has agreed with the IMF to scale it down to 0.6 percent of GDP in the current fiscal year. The sources said the IMF had also raised the issue of placing a strategy to erase the monster of circular debt and to come up with tariff in line with input cost by improving recovery, curbing theft and adjusting tariff on quarterly basis.

According to the IMF statement issued on Friday Pakistan’s economic programme is off to a promising start, but decisive implementation is critical to pave the way for stronger and sustainable growth. “IMF mission will return to Pakistan in late October to conduct the first review under the EFF,” it added. An IMF mission, led by Ernesto Ramirez Rigo, visited Islamabad and Karachi during September 16–20, 2019 to take stock of economic developments since the start of the Extended Fund Facility (EFF) and discuss progress in the implementation of economic policies. A full mission for the first review under the EFF is planned for late-October. At the conclusion of the staff visit, Ramirez Rigo issued the following statement.

“While the authorities’ economic reform programme is still in its early stages, there has been progress in some key areas. The transition to a market-determined exchange rate has started to deliver positive results on the external balance, exchange rate volatility has diminished, monetary policy is helping to control inflation, and the SBP has improved its foreign exchange buffers. “There has been a significant improvement in tax revenue collections, with taxes showing double-digit growth net of exporters’ refunds. Moreover, the FBR is undertaking significant steps to improve tax administration and its interface with taxpayers. Staff andundertaking significant steps to improve tax administration and its interface with taxpayers. Staff and the authorities have analysed the worse than expected fiscal results of FY2018/19, which were partially the result of one-off factors and should not jeopardize the ambitious fiscal targets for FY2019/20. Importantly, the social spending measures in the program have been implemented.

“The near-term macroeconomic outlook is broadly unchanged from the time of the programme approval, with growth projected at 2.4 percent in FY2019/20, inflation expected to decline in the coming months, and the current account adjusting more rapidly than anticipated. However, domestic and international risks remain, and structural economic challenges persist. In this context, the authorities need to press ahead with their reform agenda.

“In order to complete the first review, an IMF staff team plans to return to Pakistan in late October to assess the end-September programme targets.“The IMF team is grateful for the authorities’ hospitality and close cooperation,” the statement concluded.

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