ISLAMABAD: The International Monetary Fund (IMF) has for the first time conveyed a strongly-worded message to Pakistan, asking it to get its act together if it wants to keep the Fund’s $11.3 billion programme on track – a tough task which involves achieving some unrealistic targets set in the budget.
Finance ministry officials said that the strict warning was given by the visiting IMF Mission Chief for Pakistan, Adnan Mazarei, in a meeting with Finance Minister Dr Abdul Hafeez Shaikh. The meeting started on a bitter note, as the minister could not make it to the venue on time, which made the IMF representative angry as he had to wait for over half an hour, said insiders.
The IMF thinks that the government has set over-ambitious targets in the budget and is not taking the required actions to achieve them, said the sources.
Mazarei termed the budget deficit target and its financing plan “risky” and told the finance minister in explicit terms that Pakistan did not have a secure “financing plan for 4 per cent budget deficit target”.
According to the IMF assessment, Pakistan’s dependence on getting Rs42 billion or $500 million external financing by floating a Euro Bond was risky, so the maximum sure-fire budget financing was only for 3.5 per cent deficit. The IMF was of the view that because of Greece debt crisis, international investors would be wary of investing in Pakistan’s bond.
The government has announced that during the current financial year, the gap between its income and expenditure would remain at Rs685 billion, or 4 per cent of the total size of the economy. It has estimated that it needs to borrow Rs186 billion from external sources and Rs499 billion from domestic sources to plug the gap. The deficit target too was pegged on the assumption that the provinces would generate upwards of Rs167 billion. The government also missed last year’s budget deficit target by a wide margin.
The IMF concern was that after failing to get external financing, the government would resort to state bank borrowing which was inflationary in nature. The IMF conveyed to the authorities that their performance was not up to the mark and that they have to deliver on promises before a meeting of the Executive Board of the Fund for the approval of the next tranche. So far, Pakistan has received $8.7 billion in loans out of the agreed upon $11.3 billion. The Fund would closely monitor the receipts and expenditures for the months of July and August and the implementation plans for levying the reformed GST.
Officials said in response to IMF message the finance minister said that he had already briefed the political leadership on the “weak financial situation” and it was better for him (Adnan Mazarei) to give this strong message to the political leadership in his scheduled meetings. The finance ministry had recently briefed the PM about the economic situation and advised him to reduce non-productive expenditures.
They added that the biggest concern for the IMF was that Pakistan had failed to increase revenues and cut expenditures and its words did not match its deeds. The sources said Mazarei was not confident that Pakistan would be able to deliver on the promise of implementing a reformed General Sales Tax from October 1. The IMF technical staff is also in town for the last three days and it expressed apprehension over the inflation target. The IMF staff has estimated that inflation would be in double digits at the end of the current fiscal year 2010-11, against a government projection of 9.5 per cent.
The Executive Director of the IMF, Jaffar Mojarrad, also held a meeting with Dr Abdul Hafeez Sheikh. During the meeting, the IMF executive director was briefed on the state of Pakistan’s economy. Dr. Mojarrad represents the constituency to which Pakistan belongs in the IMF. He is on his way to Afghanistan to attend a Donors Conference being organised in Kabul on July 20.
Published in The Express Tribune, July 18th, 2010.