Delay in IMF visit over flood impact on budget

Global lender’s team may come to Pakistan this month for review of loan programme

ISLAMABAD:

Pakistan and the International Monetary Fund (IMF) have developed differences over the impact of the flood damages on the budget, causing an inordinate delay in fielding a mission to Islamabad by the global lender for the next review of its loan programme.

Both sides have been trying to bridge the gap amid a finance ministry assessment, which suggests that because of higher debt servicing cost and lower revenues from petroleum products, the primary budget deficit can peak to around Rs2.2 trillion in the current fiscal year without additional measures, sources told The Express Tribune.

“Although the number remains tentative, our assessment has indicated that the primary budget deficit -- the revenues after paying the interest cost -- could be as high as 2.8% of the GDP or Rs2.2 trillion,” said a senior government official.

The estimated figure is far higher than the 0.2% of the GDP primary budget surplus target agreed with the IMF in the pre-flood scenario.

However, the sources said the dilemma was that the slippages were more because of non-flood factors.

They added that the impact of the floods on the budget was not more than 0.2% of the GDP.

The sources said during a recent interaction with IMF Resident Representative Esther Perez, the disagreement remained over how much impact of the total $16 billion estimated reconstruction cost should be booked in the current fiscal year.

Pakistan’s view is that there was no significant impact of the reconstruction cost during the remaining period of the programme that is expiring in June. However, the IMF did not agree to it.

Pakistan will share fresh data with the IMF next week that will determine whether there is still a possibility for the global lender’s mission to visit Islamabad this month or it may be delayed until December.

About $3 billion IMF loan money remains undisbursed that can only be released subject to the completion of three reviews.

Aside from differences over the fiscal framework, Pakistan has not been able to meet some of the other IMF conditions including an increase in electricity prices.

Under the revised schedule agreed in June, the IMF should have sent a mission to Pakistan in October for the 9th review that would have paved the way for the release of another tranche of about $1.2 billion on November 3.

However, the global lender is taking longer than the scheduled time on the pretext of the matters that can be sorted out.

“The IMF has asked Pakistan to review the impact of the floods on the budget and the economy. Once the implications are clear, only then there will be clarity on the dates of the IMF mission’s visit,” said Dr Aisha Ghaus Pasha, the minister of state for finance.

She added that the analysis of the flood impact remained incomplete, and that was why the visit’s dates were not clear.

Last week, the global lender’s resident representative stated in a terse statement that “the IMF remains engaged with the authorities under the current programme to support their endeavour to provide relief to the vulnerable population affected by the floods, advance reconstruction efforts, while ensuring sustainable policies”.

However, she did not reply to a question whether any date was finalised or not.

The sources said that the major issue was the slippages on account of the primary budget deficit, now being worked out around 2.8% of the GDP.

They noted that the budgeted debt servicing cost was estimated at less than Rs4 trillion.

However, the revised estimates indicated that the debt cost might jump as high as over Rs4.7 trillion, they added.

Similarly, the sources said, the revenues on account of petroleum levy might remain below the budgeted target of Rs855 billion by at least Rs300 billion.

The net impact of low petroleum levy collection and high debt servicing cost was nearly 1.3% of the GDP, they added.

The Federal Bureau of Revenue (FBR) collection might also fall below the annual target of Rs7.470 trillion and the IMF has already demanded imposing additional taxes worth Rs600 billion.

On top of that, the government has offered a Rs100 billion subsidy only to exporters and an agricultural package, the actual impact of which remains unclear.

This has further complicated issues for the finance ministry.

The ministry has been trying to include some cost of the agricultural package under the flood relief, which the farmers needed after the devastating impact on the crops.

However, it is difficult to justify the subsidy for the exporters, who have been bleeding the national resources without giving any meaningful return.

In the last fiscal year, the total impact of the direct and indirect subsidies to the exporters was Rs536 billion, including cheap loans, according to an assessment by the finance ministry.

The central bank has estimated the current account deficit at below $10 billion for the current fiscal year, which is significantly lower than that calculated by the World Bank.

Another issue is the external financing requirements that Finance Minister Ishaq Dar has been trying to bridge through requests to the UAE, Saudi Arabia and China, said the sources.

A $2 billion UAE debt is maturing in February next year. The finance minister this week requested the UAE to extend it further, the sources added.