IMF is Not Sending SOS Mission for Renegotiations - Finance Ministry - Android

The government on Friday refuted claims made in news reports that the International Monetary Fund (IMF) is sending an SOS… Read More

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The government on Friday refuted claims made in news reports that the International Monetary Fund (IMF) is sending an SOS mission to Pakistan owing to the fiscal outcomes of FY 2018-19 and that the program might be renegotiated.

“It is clarified that both these assertions are completely incorrect and not based on actual ground realities,” said the ministry in a statement.

The ministry added,

The targets under the IMF program are ambitious, there is no need to renegotiate. The upcoming IMF Mission is a staff-level visit that had been planned much earlier and it is absolutely erroneous to construe that the IMF staff-level mission is any kind of SOS mission.

The government said that the reforms agenda being pursued with the support of the IMF Extended Fund Facility (EFF) is aimed at putting the economy on a sustainable growth trajectory.

”The progress on nearly all the performance and structural benchmarks during Q1 FY20 is so far very encouraging with a strong indication that all the targets will be met.” stated the Ministry of Finance

The statement read that,

The reforms agenda pursued by the Government of Pakistan and supported by the IMF Extended Fund Facility (EFF) are target-oriented but necessary to put the economy on a sustainable growth trajectory’.

The ministry said that misunderstandings have arisen in the media around the scheduled visits of IMF Middle East and Central Asia Director Jihad Azour and the technical team over the next couple of weeks.

It said the ministry will meet with Mr. Jihad Azour Director of the IMF Middle East and Central Asia Department next week and will apprise him on the results achieved so far.

However, this is not an IMF review mission as certain segments of the media have suggested in their publications. IMF technical levels talks are expected to be held at a later stage after completion of Q1 FY20 and will provide both teams the opportunity to review progress made to date. The Finance Ministry is fully committed along with the IMF towards the ongoing reforms program. The reforms program has 7 performance criteria, 5 indicative targets and 13 structural benchmarks and the progress on all of them is very encouraging.

Overall Fiscal Framework Details

The ministry also clarified that the government will not face a gap of up to Rs 1 trillion in the FY20 fiscal framework.

It said that fiscal outcomes of FY19 were due to concerns over slowdown in growth and there were three key factors including monetary and exchange rate corrections, need for protection of citizens from rising oil prices and expanding social safety nets and escalations on the border with India which contributed to the fiscal deficit rising to 8.9 percent of the GDP, compared to a target of 7.2%.

SBP took a decision in FY19 to correct the large trade deficit and shore up FX reserves, said the Ministry.

These measures have helped reduce the Current Account deficit (CAD) to $13.5 billion in FY19, down from $19.9 billion in FY18. However, the rise in interest rates and a weaker Rupee have led to a significant jump in the government’s debt servicing costs. These contributed Rs. 104 billion to the overall slippage.

On the other hand, the devaluation of the currency eroded profits of the SBP for FY19, with a shortfall of Rs. 135 billion in non-tax revenue of the government. The non-tax revenue shortfall was exacerbated by the litigation by the telecom operators on renewal of the 3G/4G licenses and the revenue of Rs. 80 billion did not materialize in FY19. This matter is now partially resolved with telecom operators depositing Rs. 70 billion as the first installment in September 2019.

The Federal government also faced a shortfall of Rs 85 billion from interest receipts from PSEs (NHA, WAPDA etc) and FBR tax revenue shortfall of Rs 321 billion in FY19 was the single biggest reason for the increase in the fiscal deficit driven by a fall in imports (which account for 45% of total FBR tax collection in customs duty, GST and excise), said the statement.

However, other key factors also contributed to increasing the fiscal deficit. Most notably, the decision of the government to shield domestic consumers from rising oil prices resulted in over Rs. 100 billion shortfalls in GST collection. Against a revised target of 7.2% of GDP (published on April 2019), at the outset of the program – the fiscal year FY19 closed at 8.9% of GDP indicating a slippage of Rs. 686 billion, stated the ministry.

While revenue shortfalls contributed significantly to the rise in deficit, the expenditure overruns were also necessitated by the need to expand social safety nets and higher investment spending (PSDP). If the government had decided to curtail these expenditures further, it would have led to a further slowdown in GDP growth and caused a hard landing for the economy which is already undergoing major monetary and exchange rate adjustments, the ministry conceded.

The attack on Pakistan by Indian forces and the standoff at the border has also resulted in a significant escalation in the FY19 expenditures, all of which are necessary to ensure the safety of citizens.

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