IMF to send crisis team to cash-strapped Pak to curtail budget deficit

The IMF is sending its SOS mission to Pakistan this month for suggesting ways to the cash-strapped government to curtail the yawning budget deficit being faced by the country, according to a media report on Friday.

In July, the International Monetary Fund (IMF) formally approved a USD 6 billion loan to Pakistan, which is facing "significant" economic challenges on the back of "large" fiscal and financial needs and "weak and unbalanced" growth.

The IMF team will visit Pakistan from September 16-20 to discuss fiscal issues with special focus to restrict target of primary deficit within the desired limits, Teresa DabanSanchez, IMF Resident Chief in Pakistan, was quoted as saying by the News International.

The decision was taken in the wake of the worsening fiscal situation of Pakistan's economy.

"An IMF technical team is scheduled to visit Pakistan after Ashura Moharram probably from September 17 for staying here for 10 days," the report quoted official sources as saying.

The IMF's review was expected to take place in November but the decision of dispatching this technical mission suggests that the IMF is not happy with massive slippages on fiscal front, the report said.

Pakistan has initially tabled option of renegotiating targets envisaged under the IMF programme in the context of emerging new realities on fiscal front as the Federal Board of Revenue's (FBR) quarterly target has been requested to revise downward from Rs1.071 trillion to over one trillion rupees for end September 2019.

A video conference was held between Pakistan and the IMF team on Wednesday in which the global lender's staff expressed its serious concerns over sharp rise in the budget deficit in the last fiscal year ended on June 30, 2019 that proved all projections wrong made by the IMF and the Finance Ministry at the time of negotiating the deal of USD 6 billion under the 39-month Extended Fund Facility (EFF).

The fiscal targets especially primary deficit has misaligned massively as the IMF has placed condition to bring down the primary deficit from 1.8 per cent of GDP to 0.6 per cent of GDP in the current fiscal year.

Now the primary deficit had gone up to 3.6 per cent of GDP and no one knows how massive adjustments of Rs1,300 billion could be made to slash the primary deficit to 0.6 per cent of GDP.

They said that the upcoming technical mission will be providing assistance to the Ministry of Finance and other ministries/departments on tax and non-tax revenue collection, fixing cash bleeding state-owned entities and devising strategy on issues related to central bank front.

The IMF team inquired about the reasons for escalation in the budget deficit as both sides had estimated in April 2019 that the budget deficit might touch 7.2 per cent of GDP for the last fiscal year 2018-19 so this projection became the basis of the IMF programme with the primary deficit projected at 1.8 percent of GDP.

"When the basis of IMF programme has shaken what is the guarantee that the envisaged targets for the current fiscal year will be materialised," the IMF side raised question.

Pakistani team explained that the FBR faced shortfall owing to variety of policy issues and slowdown of the economy. On non-tax revenue front, they said that the renewal of licences of mobile operators could not be materialised in the last fiscal but now Rs70 billion has been received.

Cash-strapped Pakistan has also received billions of dollars in financial aid packages from friendly countries like China, Saudi Arabia and the UAE in recent months.

According to the Economic Survey 2018-19, Pakistan's economy grew at an average rate of 3.29 per cent in fiscal year 2018-19 against an ambitious target of 6.2 per cent set in last year's budget.