IMF, ministry projections go off the mark
PTI govt may face gap of up to Rs1 trillion in FY20 fiscal framework
Both Pakistan and the IMF will hold first review of the $6-billion programme by the end of November or early December, which will provide a chance to reset the targets set by the lender, according to sources. PHOTO: FILE
ISLAMABAD:
The International Monetary Fund (IMF) and the finance ministry’s projections about Pakistan’s last fiscal year framework have went off the mark by up to 94%, which the country’s top economists say may force the government to renegotiate the $6-billion loan deal.
The incapability of the IMF and finance ministry to make accurate forecasts for the macroeconomic indicators has eroded the base numbers, which were fed into the targets set for current fiscal year 2019-20.
In light of new realities, a hole of Rs900 billion to Rs1 trillion was surfacing in the fiscal framework for 2019-20, said sources in the Ministry of Finance. The gap was on account of an estimated shortfall in tax revenues and some expenditure slippages, they added.
This has put a question mark over the capability of both institutions which have failed to project the full fiscal year’s numbers in the 11th month of fiscal year 2018-19. Projections of the Washington-based global lender for budget deficit, primary deficit, total revenues, tax revenues, FBR’s revenues, current account deficit, gross official foreign currency reserves, foreign direct investment and expenditures for 2018-19 were missed by a huge margin.
In its staff-level report made public in mid-July, the IMF projected the budget deficit for 2018-19 at 7% of gross domestic product (GDP) or Rs2.7 trillion. But statistics of the finance ministry last month showed that the deficit was 8.9% of GDP, 27% higher than the IMF’s projection.
The major deviation was on account of primary budget deficit - calculated by excluding interest payments - which went off the mark by 94%. The primary deficit is one of the core areas of the IMF programme.
The IMF projected the primary deficit at Rs702 billion or 1.8% of GDP, showed its report. However, the finance ministry’s statistics put the primary deficit at Rs1.35 trillion or 3.5% of GDP. Based on 1.8% primary deficit projection, the IMF has given 0.6% of GDP as the primary deficit target for the current fiscal year.
“This has never happened in the history of Pakistan that the primary deficit in a single year falls by around 3% of GDP,” said former finance minister Dr Hafiz A Pasha. “In light of the erosion of base numbers, the government may have to request the IMF to renegotiate the deal.”
The IMF should have smelled these numbers during the staff-level talks held in May, said Pasha. He said it was also the failure of the finance ministry.
The IMF has set current fiscal year’s tax collection target at Rs5.5 trillion on the basis of projected collection of Rs4.153 trillion in the previous fiscal year, showed its report. But the actual FBR’s collection remained at Rs3.829 trillion in the previous year. The IMF’s projection about the FBR’s target was off the mark by nearly 8%.
“Economic slowdown coupled with a low base has made the Rs5.5-trillion tax collection target unrealistic,” a top FBR official told The Express Tribune. He said the FBR, at best, could collect Rs4.8 trillion to Rs5 trillion.
The FBR has missed the first two-month revenue collection target by Rs64 billion, despite setting a relatively low goal, which required only 29% growth. On the basis of Rs3.829-trillion collection last year, the FBR needs 44% growth.
The Ministry of Finance spokesman, however, ruled out the possibility of renegotiating the IMF programme in the near future.
“The government is sticking to the stabilisation policies and will try to achieve the agreed targets and there does not appear any scope for renegotiation with the IMF in the near future,” said Omar Hamid Khan, Special Secretary of the Ministry of Finance.
Both Pakistan and the IMF will hold first review of the $6-billion programme by the end of November or early December, which will provide a chance to reset the targets, according to the sources.
A member of the government’s Economic Advisory Council (EAC) disagrees with the finance ministry’s assertion about not renegotiating the deal. “There is a need to reset the IMF programme as both the budget 2019-20 and the IMF macroeconomic framework have become redundant,” said EAC member Dr Ashfaque Hasan Khan.
Khan said the central bank should stop letting the currency depreciate and start reducing the interest rate.
In its report, the IMF expected that the current account deficit would remain at 4.6% of GDP or $13 billon. The actual deficit was $13.6 billion in the last fiscal year.
Published in The Express Tribune, September 4th, 2019.
The International Monetary Fund (IMF) and the finance ministry’s projections about Pakistan’s last fiscal year framework have went off the mark by up to 94%, which the country’s top economists say may force the government to renegotiate the $6-billion loan deal.
The incapability of the IMF and finance ministry to make accurate forecasts for the macroeconomic indicators has eroded the base numbers, which were fed into the targets set for current fiscal year 2019-20.
In light of new realities, a hole of Rs900 billion to Rs1 trillion was surfacing in the fiscal framework for 2019-20, said sources in the Ministry of Finance. The gap was on account of an estimated shortfall in tax revenues and some expenditure slippages, they added.
This has put a question mark over the capability of both institutions which have failed to project the full fiscal year’s numbers in the 11th month of fiscal year 2018-19. Projections of the Washington-based global lender for budget deficit, primary deficit, total revenues, tax revenues, FBR’s revenues, current account deficit, gross official foreign currency reserves, foreign direct investment and expenditures for 2018-19 were missed by a huge margin.
In its staff-level report made public in mid-July, the IMF projected the budget deficit for 2018-19 at 7% of gross domestic product (GDP) or Rs2.7 trillion. But statistics of the finance ministry last month showed that the deficit was 8.9% of GDP, 27% higher than the IMF’s projection.
The major deviation was on account of primary budget deficit - calculated by excluding interest payments - which went off the mark by 94%. The primary deficit is one of the core areas of the IMF programme.
The IMF projected the primary deficit at Rs702 billion or 1.8% of GDP, showed its report. However, the finance ministry’s statistics put the primary deficit at Rs1.35 trillion or 3.5% of GDP. Based on 1.8% primary deficit projection, the IMF has given 0.6% of GDP as the primary deficit target for the current fiscal year.
“This has never happened in the history of Pakistan that the primary deficit in a single year falls by around 3% of GDP,” said former finance minister Dr Hafiz A Pasha. “In light of the erosion of base numbers, the government may have to request the IMF to renegotiate the deal.”
The IMF should have smelled these numbers during the staff-level talks held in May, said Pasha. He said it was also the failure of the finance ministry.
The IMF has set current fiscal year’s tax collection target at Rs5.5 trillion on the basis of projected collection of Rs4.153 trillion in the previous fiscal year, showed its report. But the actual FBR’s collection remained at Rs3.829 trillion in the previous year. The IMF’s projection about the FBR’s target was off the mark by nearly 8%.
“Economic slowdown coupled with a low base has made the Rs5.5-trillion tax collection target unrealistic,” a top FBR official told The Express Tribune. He said the FBR, at best, could collect Rs4.8 trillion to Rs5 trillion.
The FBR has missed the first two-month revenue collection target by Rs64 billion, despite setting a relatively low goal, which required only 29% growth. On the basis of Rs3.829-trillion collection last year, the FBR needs 44% growth.
The Ministry of Finance spokesman, however, ruled out the possibility of renegotiating the IMF programme in the near future.
“The government is sticking to the stabilisation policies and will try to achieve the agreed targets and there does not appear any scope for renegotiation with the IMF in the near future,” said Omar Hamid Khan, Special Secretary of the Ministry of Finance.
Both Pakistan and the IMF will hold first review of the $6-billion programme by the end of November or early December, which will provide a chance to reset the targets, according to the sources.
A member of the government’s Economic Advisory Council (EAC) disagrees with the finance ministry’s assertion about not renegotiating the deal. “There is a need to reset the IMF programme as both the budget 2019-20 and the IMF macroeconomic framework have become redundant,” said EAC member Dr Ashfaque Hasan Khan.
Khan said the central bank should stop letting the currency depreciate and start reducing the interest rate.
In its report, the IMF expected that the current account deficit would remain at 4.6% of GDP or $13 billon. The actual deficit was $13.6 billion in the last fiscal year.
Published in The Express Tribune, September 4th, 2019.