Eighth review: IMF waives conditions on budget deficit, SBP borrowings
Clears path for release of next $502 million tranche of the $6.2 billion loan
IMF clears path for release of next $502 million tranche of the $6.2 billion loan. PHOTO: INP
ISLAMABAD:
The International Monetary Fund (IMF) agreed on Friday to waive requirements of lowering the budget deficit and borrowings from the central bank on Pakistan, two lynchpin conditions of the $6.2 billion loan programme. The move paves the way for the lender’s executive board to approve the next $502 million tranche of the bailout.
The staff-level agreement was reached between Finance Minister Ishaq Dar and IMF Mission Chief in Pakistan Harald Finger. The talks continued for ten days in Dubai under the eighth review of the $6.2 billion Extended Fund Facility. An IMF handout said the agreement is subject to approval by the IMF management and executive board.
Going forward, the IMF asked Pakistan to focus on structural reforms to achieve higher exports, investment, jobs and economic growth, areas where the government’s performance is far less than satisfactory. It also stressed on restructuring and privatising loss-making public enterprises, and urged the government to advance energy sector reforms and improve the business climate.
Both sides could not reach an agreement over holding bi-annual rather than quarterly reviews. “No understanding has been reached on holding reviews every six months as the issue of cash flow has to be resolved yet,” Finance Minister Ishaq Dar told The Express Tribune from Dubai.
Pakistan has already received $4.2 billion under the programme and does not want bi-annual reviews to disturb the cash flow plan of the remaining $2 billion. Currently, the IMF plans to release this amount in four quarterly tranches of $500 million.
Performance review
Pakistan could not meet the end-June 2015 performance criteria on the budget deficit reduction and government borrowing from the State Bank of Pakistan (SBP) by a small margin, according to the IMF handout.
Dar said missing the budget deficit target was explainable to the IMF staff which is why the lender agreed to waive the condition. Against the target of 4.9% of GDP, Pakistan’s deficit widened to 5.3% over the previous fiscal year, he told reporters in Dubai.
Dar blamed the provincial governments for missing the overall budget deficit target, saying they could not ensure promised cash surpluses of Rs287 billion. However, he skipped the core reason behind missing the target, which was the failure of the Federal Board of Revenue’s failure to collect Rs2.81 trillion despite levying Rs360 billion additional taxes. The provinces get 57.5% of the federal divisible pool and any shortfall in collection has direct bearing on cash surpluses.
The government could also not reduce borrowings from SBP to Rs1.865 trillion and missed indicative targets on tax revenue, which stood at only Rs2.581 trillion, and accumulation of circular debt, which deviated from end-June 2015 programme targets, as well.
Finger said Pakistan’s economy was expected to grow at a pace of 4.5% this fiscal year, one percentage point less that the government’s target. But Dar insisted the government would retain its goal of 5.5% growth.
The IMF also said that while inflation was on a downward trajectory, the pace of increase in prices is expected to pick up in the coming months.
On the up side, the lender said Pakistan met all monetary policy targets with a significant margin in some cases.
Published in The Express Tribune, August 8th, 2015.
The International Monetary Fund (IMF) agreed on Friday to waive requirements of lowering the budget deficit and borrowings from the central bank on Pakistan, two lynchpin conditions of the $6.2 billion loan programme. The move paves the way for the lender’s executive board to approve the next $502 million tranche of the bailout.
The staff-level agreement was reached between Finance Minister Ishaq Dar and IMF Mission Chief in Pakistan Harald Finger. The talks continued for ten days in Dubai under the eighth review of the $6.2 billion Extended Fund Facility. An IMF handout said the agreement is subject to approval by the IMF management and executive board.
Going forward, the IMF asked Pakistan to focus on structural reforms to achieve higher exports, investment, jobs and economic growth, areas where the government’s performance is far less than satisfactory. It also stressed on restructuring and privatising loss-making public enterprises, and urged the government to advance energy sector reforms and improve the business climate.
Both sides could not reach an agreement over holding bi-annual rather than quarterly reviews. “No understanding has been reached on holding reviews every six months as the issue of cash flow has to be resolved yet,” Finance Minister Ishaq Dar told The Express Tribune from Dubai.
Pakistan has already received $4.2 billion under the programme and does not want bi-annual reviews to disturb the cash flow plan of the remaining $2 billion. Currently, the IMF plans to release this amount in four quarterly tranches of $500 million.
Performance review
Pakistan could not meet the end-June 2015 performance criteria on the budget deficit reduction and government borrowing from the State Bank of Pakistan (SBP) by a small margin, according to the IMF handout.
Dar said missing the budget deficit target was explainable to the IMF staff which is why the lender agreed to waive the condition. Against the target of 4.9% of GDP, Pakistan’s deficit widened to 5.3% over the previous fiscal year, he told reporters in Dubai.
Dar blamed the provincial governments for missing the overall budget deficit target, saying they could not ensure promised cash surpluses of Rs287 billion. However, he skipped the core reason behind missing the target, which was the failure of the Federal Board of Revenue’s failure to collect Rs2.81 trillion despite levying Rs360 billion additional taxes. The provinces get 57.5% of the federal divisible pool and any shortfall in collection has direct bearing on cash surpluses.
The government could also not reduce borrowings from SBP to Rs1.865 trillion and missed indicative targets on tax revenue, which stood at only Rs2.581 trillion, and accumulation of circular debt, which deviated from end-June 2015 programme targets, as well.
Finger said Pakistan’s economy was expected to grow at a pace of 4.5% this fiscal year, one percentage point less that the government’s target. But Dar insisted the government would retain its goal of 5.5% growth.
The IMF also said that while inflation was on a downward trajectory, the pace of increase in prices is expected to pick up in the coming months.
On the up side, the lender said Pakistan met all monetary policy targets with a significant margin in some cases.
Published in The Express Tribune, August 8th, 2015.