Crafting their next move: Officials at odds over what numbers to present IMF

Finance ministry wants to paint a rosy picture, SBP disagrees.

ISLAMABAD:

As Pakistan prepares for the first round of post-programme monitoring talks with the International Monetary Fund (IMF), key state institutions are at odds over whether to present a rosy picture of the economy, or table realistic assumptions.

The State Bank of Pakistan (SBP) and the Ministry of Finance are at odds over the expected extent of the budget deficit in the current financial year: sources in the finance ministry say the central bank is insisting on presenting a more realistic, albeit bitter to swallow, scenario to the IMF in upcoming talks.

In a recent preparatory meeting for the post-programme monitoring dialogue, SBP officials asked the finance ministry to shun its policy of ‘misleading the populace’ and adjust its macroeconomic framework according to ground realities, said the sources.

The SBP has taken the stance at a time when the finance ministry has come under a barrage of criticism for presenting unrealistic economic indicators. Critics say repeated misrepresentation also led to the government missing all macroeconomic targets set for the last fiscal year. Against projections of a 4% budget deficit, the government closed its books for fiscal 2011-12 with a highest-ever deficit of 8.53%.

The SBP has recommended revising the projected budget deficit upwards by 0.3%, and to set it at 5% for fiscal 2013, in line with ground realities. However, despite the prospect of public embarrassment due to misleading projections of nearly all key indicators, the finance ministry does not seem very bothered. The finance ministry is adamant on presenting the overall budget deficit projection unchanged at 4.7% to the IMF.

The SBP has also suggested the finance ministry revise this year’s Rs2.381 trillion tax target downward by the extent of the shortfall in collection during the last fiscal year. The Rs71 billion shortfall in revenue collection in fiscal 2012 dented the base used for setting the tax target for the current fiscal year, the central bank maintains.

The Federal Board of Revenue already faces massive revenue shortfall during the first two months (July-August) of the new fiscal year. The authority’s poor performance was a major point of contention in a recent meeting of the Economic Coordination Committee of the Cabinet.

Sources say that according to various estimates, the FBR cannot collect more than Rs2.2 trillion, even if it includes new tax measures. The authority has also reportedly started compromising on key tax policy measures, in a bid to appease vested interests ahead of general elections.

When contacted, Rana Assad Amin, spokesperson for the finance ministry, ruled out any revision in the budget deficit target. “We are not ready for any revision at this point in time,” said Amin, in a terse response.

Pakistan’s exposure to a $11.3 billion IMF loan has obligated the country to hold post-programme monitoring exercises, aimed to keep a close watch on the economy. The dates for the talks are being worked out, and it is expected that an IMF team will visit Islamabad for the upcoming round. Authorities are already planning meetings of the team with President Asif Ali Zardari and Prime Minister Raja Pervez Ashraf.

In its post-evaluation report on the programme, the IMF has suggested that any new programme be signed by the President, in order to obtain political assurances at the highest level. However, Pakistan has differed with this condition.

SBP authorities are expecting a tough round of negotiations, as the chief of IMF’s Pakistan Desk has been replaced: Frank Jeffery, an American, has taken over as the post, replacing the soft-spoken Adnan Mazarei.

Published in The Express Tribune, September 7^th, 2012.