IMF allows Pakistan to use its resources for balance of payment, budgetary support

ISLAMABAD: The International Monetary Fund (IMF) has allowed Pakistan for utilising its resources as balance of payment as well as budgetary support in next fiscal year 2020-21, The News has learnt.

The IMF support is traditionally being utilised for balance of payment (BoP) support, but keeping in view the yawning budget financing requirement of any country, the Fund provides such facility of allowing for budgetary support with the approval of its Executive Board.

A top official said the IMF granted its permission keeping in view massive budgetary requirements.

The IMF’s Resident Chief in Pakistan Teresa Daban Sanchez, when contacted, said, “Country members of the IMF have the prerogative to request the board of directors that part of all the IMF resources could be used as budget support. This is something to be decided by the Board of Directors.”

The budget documents for 2020-21 show that the government had estimated Rs 750 billion budgetary support from friendly countries on the eve of last budget for 2019-10 but it materialised zero amounts in outgoing fiscal year ending on June 30, 2020. For next fiscal year 2020-21, the budget document shows that there will be zero amounts expected from friendly countries.

When asked from Finance Ministry high-ups, they said that the Kingdom of Saudi Arabia and UAE had provided $5 billion deposits, but in agreement there was no provision for utilising this support as budgetary support. Pakistani officials expect that they would get permission, but it could not be materialised so the budget document showed zero amounts under this head. However, there is good news that the IMF allowed Pakistan to utilise its resources as budgetary support. The budget document for 2020-21 shows that the IMF provided Rs456.652 billion as budgetary support for outgoing fiscal year and it would be providing another Rs211.066 billion in upcoming fiscal year.

A top official of the Finance Ministry told The News that Pakistan had to make its budget under very tough conditions and argued that the IMF kept insisting on restricting the primary deficit at 0.4 percent of GDP. Finally, Pakistan and the IMF side evolved consensus at 0.55 percent of GDP, equivalent to around Rs250 billion as primary deficit target for next fiscal year. There were two choices either to increase revenue or to cut down expenditures. It was not possible to go ahead with aggressive taxation measures when the economic activities were almost halted in wake of COVID-19 pandemic.

It was difficult decision to freeze the salaries of government employees but there was no other choice available before the budget makers. When the IMF’s Mission Chief Ernesto took stance that G-20 countries provided debt relief but they reduced the salary of public sector employees by 1 percent. He raised question the donor was cutting down salary of its employees by 1 percent, but recipient of debt relief was increasing salaries by 10 percent?

Pakistani side replied that the inflation rate in developed world stood at 1 to 2 percent, but official estimates suggested it would be around 9.1 percent for outgoing fiscal year in Pakistan. So comparison with the developed world is not fair, said the official sources.

Pakistan’s budget deficit is envisaged at Rs3,195 billion, equivalent 7 percent of GDP, for the next fiscal year against Rs3,728 billion or 9.1 percent of GDP for the outgoing fiscal year ending on June 30, 2020.