Failure to meet collection target, reduce stock of refund arrears: Pakistan to seek IMF’s waivers

ISLAMABAD: Pakistan will have to seek waivers from the IMF’s Executive Board on missing out two performance and indicative targets related to the FBR’s collection target and reducing stock of refund arrears for end September 2019.

In order to build up foreign currency reserves and materialize Net International Reserves (NIR) up to the desired target under the IMF program through “hot money” from abroad, the government has lured $328 million through foreign investors for investing into government bonds and treasury bills.

This hot money at higher interest rates in the range of over 14 percent is a highly “controversial move” that was criticized by many independent economists.

However, the government is also finding it hard to meet the third indicative target to curtail the monster of circular debt to Rs23 billion by end September 2019, as the latest estimates suggest that the flow of circular debt had gone up by Rs60 billion in the last three months (July-Sept), as it increased from Rs800 billion in June 30, 2019 to Rs861 billion on September 30, 2019.

On curtailing the power sector arrears to Rs23 billion under the IMF’s indicative target for end September 2019, the government is making efforts to restrict this figure to the desired limit. However, top guns of the ministries of finance and power were reluctant to talk on this subject despite several efforts.

The monster of circular debt as defined by the IMF stood at Rs800 billion on June 30, 2019 and it was agreed under the Fund program that the arrears accumulation would be restricted to Rs23 billion in the first quarter of the current fiscal year. Now the rough estimates suggest that the arrears accumulation has gone up by Rs60 billion.

Now the government is making efforts to adjust it by providing increased amount of subsidies in order to avoid another breach of indicative target under the Fund program.

On FBR’s quarterly target of Rs1071 billion, the FBR has collected Rs1070 billion showing impressive growth on front of domestic taxes.

The FBR high-ups claimed that the IMF team sent them message of “congratulation” on 30 percent growth of domestic taxes but the import compression of $3 billion caused loss to the revenue efforts. On reduction in stocks of refunds arrears, the FBR high-ups claimed that the IMF inserted figure of Rs75 billion reduction without undertaking proper homework and it was now agreed that when the upcoming review mission would visit Islamabad by end October or early November then the reduction in stock arrears of refunds would be reassessed again and new figures would be made part of the IMF program.

On face of it, the IMF indicative target requires reduction of Rs75 billion; however, the FBR released refunds to the tune of Rs30.1 billion in first three months of the current fiscal year. Now the key target of restricting the primary deficit will be crucial one as under the original plan the government had to keep it at Rs102 billion for end September 2019. There are certain caveats as inability of reducing the refund stocks will also result into making the primary deficit more difficult so it is yet to see how much the primary deficit is brought down on lower side at time of upcoming review of IMF that will take place by end of the ongoing month.