Like the previous reviews, the IMF Board again waived two critical conditions, namely lowering the budget deficit and borrowing from the central bank. With these fresh waivers, the total number of waivers in eight reviews of the IMF programme has reached 12, highlighting the government’s failure in implementing reforms. Highly placed sources in Washington, D.C. said that this move had attracted some concern during the meeting held at the IMF Headquarters on September 28th.
The eighth review was the most contentious appraisal in the last two years, as the Resident Mission of the IMF had sought clarifications from Pakistani authorities, questioning the authenticity of the data provided by the Ministry of Finance. The main bone of contention was the budget deficit figure that the Ministry of Finance had claimed stood at 5.3% of Gross Domestic Product (GDP) or Rs1.45 trillion.
Contesting the official claims, the independent economists had worked out the budget deficit at 6.4% of the GDP or Rs1.752 trillion while using the same official set of numbers.
An official of the finance ministry said that the IMF gave approval to a budget deficit figure of 5.37%, which is slightly higher than number reported by the government earlier. However, the IMF’s views could not be obtained due to its decision to withhold the statement.
This decision of the Executive Board would immediately provide a sigh of relief to the beleaguered government that was facing allegations of figure fudging and brings total disbursements to $4.54 billion in two years under a three-year programme supported by an Extended Fund Facility (EFF) arrangement.
The IMF management and staff has been facing criticism for presenting reports about the health of the economy, which independent economists say are contrary to ground realities. The independent experts say that the IMF is approving quarterly reviews of the economy despite the government’s failure to implement promised structural reforms in areas such as public finances, energy, central bank autonomy, and privatisation.
Although it has approved the release of this tranche, the IMF has asked Pakistan to do more to broaden the tax base and give real autonomy to the State Bank of Pakistan.
“Steps to increase revenue mobilization, including by broadening the tax base and strengthening tax administration, remain key to generating resources for priority spending and greater social protection,” said Mitsuhiro Furusawa, deputy managing director of the IMF and acting chair. Strengthening coordination with the provinces will also help safeguard fiscal discipline, he added, urging the federal government to create a mechanism to ensure provinces generate Rs297 billion cash surplus to achieve this year’s budget deficit target.
The IMF further said that foreign exchange reserves have continued to increase, benefitting from windfalls from lower import prices. However, additional efforts are needed to further strengthen external buffers. The IMF said that an early adoption of pending legislation to give autonomy to SBP would bolster governance and the credibility of monetary policy. Beyond this, further progress is also needed to address the remaining recommendations of the 2013 Safeguards Assessment report of the IMF, it added.
The statement added that reforms should also aim at securing a reliable supply of electricity and gas, and reducing fiscal risks posed by these sectors. An accelerated pace of privatization and restructuring of public enterprises as well as regulatory reform will also go a long way toward improving the business climate and supporting private sector-led activity, it added.
