Funding conditions
Squandering taxpayer money is not an attribute exclusive to the central government
While the headlines were dominated by Kashmir, IMF’s Resident Representative Teresa Daban made it clear that IMF funding still remains at risk due to Pakistan’s FATF grey-listing. She explained to journalists in Islamabad that exiting the grey list is critical for the stability of the financial system and securing private sector credit to meet external financing needs. “The IMF is responsible for the financial system’s stability, and FATF-related issues hamper taxation and undermine the banking system,” she said.
A US team is currently in the country to help Pakistan avoid that eventuality. Incidentally, the IMF in July estimated Pakistan’s gross external financing needs during the three-year programme period at $81 billion. Of this, it has projected private sector inflows at $28 billion. Pakistan was put on the grey list in June 2018. The IMF has added a structural benchmark to the $6 billion deal that requires Pakistan to fulfil at least 27 actions agreed with the FATF by October. While Daban acknowledged the hard work Pakistan was doing in order to get rid of the grey list, she noted that resistance to fiscal measures, opposition to governance reforms, and significant short-term external debt still needed to be addressed. She said the IMF had access to all information required for debt sustainability analysis, adding that Pakistan remained in a challenging situation and something had to be done to bring debts to sustainable levels.
The IMF had, meanwhile, made the 2019-20 plan based on a budget deficit equal to 7.2% of GDP, but initial estimates are now putting the figure well above 8.6% of GDP. One interesting observation from Daban was on fiscal relations between Islamabad and the provinces. She suggested there was still room to shift more fiscal responsibilities to the provinces, noting, “When the provinces get a larger share out of the federal tax collection, then why shouldn’t they help the federal government in times of calamities?” Indeed, as every resident of Pakistan would know, squandering taxpayer money is not an attribute exclusive to the central government.
Published in The Express Tribune, August 7th, 2019.
A US team is currently in the country to help Pakistan avoid that eventuality. Incidentally, the IMF in July estimated Pakistan’s gross external financing needs during the three-year programme period at $81 billion. Of this, it has projected private sector inflows at $28 billion. Pakistan was put on the grey list in June 2018. The IMF has added a structural benchmark to the $6 billion deal that requires Pakistan to fulfil at least 27 actions agreed with the FATF by October. While Daban acknowledged the hard work Pakistan was doing in order to get rid of the grey list, she noted that resistance to fiscal measures, opposition to governance reforms, and significant short-term external debt still needed to be addressed. She said the IMF had access to all information required for debt sustainability analysis, adding that Pakistan remained in a challenging situation and something had to be done to bring debts to sustainable levels.
The IMF had, meanwhile, made the 2019-20 plan based on a budget deficit equal to 7.2% of GDP, but initial estimates are now putting the figure well above 8.6% of GDP. One interesting observation from Daban was on fiscal relations between Islamabad and the provinces. She suggested there was still room to shift more fiscal responsibilities to the provinces, noting, “When the provinces get a larger share out of the federal tax collection, then why shouldn’t they help the federal government in times of calamities?” Indeed, as every resident of Pakistan would know, squandering taxpayer money is not an attribute exclusive to the central government.
Published in The Express Tribune, August 7th, 2019.