IMF relaxes budget deficit ceiling

Lender agrees that spending on coronavirus not to be counted for budget deficit target purposes

ISLAMABAD: The International Monetary Fund (IMF) has agreed to relax budget deficit ceiling aimed at allowing Pakistan to meet emergency fiscal needs to fight deadly coronavirus contagion that has started spreading rapidly.

“The IMF has agreed that spending on the coronavirus will not be counted for budget deficit target purposes,” Adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh told The Express Tribune on Monday.

The adviser said the government’s plan to fight with coronavirus will make sure that it does not further slow down wheel of the economy – a statement that indicates easing monetary and fiscal tightening.

The Ministry of Finance has so far sanctioned over Rs5.4 billion including Rs5 billion releases to the National Disaster Management Authority (NDMA) for emergency response purposes.

An amount of Rs300 million has already been given for quarantines and Rs85 million for Directorate of Health Establishment to beef up screening arrangements for passengers at airports.

The IMF decision to relax the deficit condition will ease restrictions on Pakistan that under the $6 billion deal is bound to keep the primary budget deficit limited to only Rs264 billion in this fiscal year 2019-20. The primary deficit is the difference between revenues and expenditures, excluding interest payments.

In the first half of the fiscal year, Pakistan showed primary surplus of Rs284 billion instead of registering a deficit on back of higher profits of the State Bank of Pakistan (SBP) and one-off telecom license fee payments. But this trend is unlikely to continue in the second half.

The SBP is also set to announce new monetary policy today amid expectations of first interest rate cut in nine months. The market expects the central bank to cut its rate by at least 1.5% to 2%, in line with new global trends.

Hafeez Shaikh said the government would also work with multilateral and bilateral lenders to seek their financial and technical assistance to fight the deadly pandemic.

The National Disaster Risk Management Fund has $26 million that are being redirected to procure equipment for controlling the spread of virus and saving lives.

“Additional fiscal stimulus will be necessary to prevent long-lasting economic damage,” wrote IMF Managing Director Kristalina Georgieva in a blog.

In advanced economies, central banks should continue to support demand and boost confidence by easing financial conditions and ensuring the flow of credit to the real economy, she added.

The IMF has also announced a $50 billion emergency financing facility to fight coronavirus that has so far taken 6,685 lives and infected about 175,000 people across the globe. Pakistan has not yet decided to avail the IMF emergency facility due insignificant community impacts.

But the cases in Pakistan have suddenly risen to over 136 after Pakistan could not properly handle people returning from Iran.

The country had refused to accept its students stuck up in China but allowed about 6,000 religious tourists to return Pakistan from Iran on the intervention of a special assistant to prime minister.

Almost all the new cases that were reported positive on Monday came from Iran and were quarantined at not very well managed facility at Taftan.  Prime Minister Imran Khan has given the mandate to devise an economic response to coronavirus strategy to the Finance Ministry.

Shaikh told The Express Tribune that the government is mindful that the measures do not slowdown economic activities in the country. He said the government’s other goal is to ensure supplies of essential food items at affordable prices while also protecting the interests of the farmers.

The Ministry of Finance will also review whether people should keep coming to offices or be directed to work from home and the decision will be taken while looking at the ground situation, he said.

Exports could be hurt because of the spread of coronavirus to Pakistan’s export destination and the committee would review the possibility to shift exports to countries that are not much affected.

Shaikh said he would also devise strategies to mitigate the impacts of the virus on jobs.

A meeting was also held in the Ministry of Finance to review impact of the ongoing coronavirus pandemic on the economy and the strategy to achieve the targets with maximum success, according to a handout issued by the Ministry of Finance.

It was agreed during the meeting that all sectors related with the economy will work in unison to achieve the economic targets with maximum effort and that the government will ensure that the common man is not affected by any adverse fallout of the pandemic, stated the Finance Ministry.