ISLAMABAD, June 25: Talks with the International Monetary Fund on a new loan programme have not been as reassuring as the new economic team had expected and calculated.
The visiting IMF mission, headed by Jaffrey Franks, has raised questions over the government’s tax collection target, a loosening monetary policy of the State Bank, projections for foreign inflows in the budget and the steps to achieve macroeconomic targets in the medium-term.
The government, particularly Finance Minister Ishaq Dar, has been claiming that fiscal and economic policy measures announced in the budget for 2013-14 are sufficient to secure a fresh extended fund facility (EFF) on Pakistan’s terms to repay the IMF’s outstanding loan.
A senior official privy to the talks told Dawn on Tuesday that an ease in the monetary policy through a reduction in the policy discount rate announced by the central bank had not gone down well with the IMF mission. The IMF had desired tightening of the monetary policy to control fiscal deficit, inflation and exchange rate stability, but the government side believed that the private sector required a policy support to ensure economic growth and to put a check on the country’s debt levels.
The IMF mission also raised objections to the government’s projected revenue collection at Rs2,007 billion by the Federal Bureau of Revenue against the budgetary target of Rs2,381bn for the current fiscal year.
According to IMF’s baseline assessment, the current year’s tax collection could touch Rs1,980bn at best. It expressed doubt about the FBR’s ability to achieve the next year’s target of Rs2,475bn, the sources said.
The IMF also had doubts about some of the foreign inflows envisaged in the budget and asked how the government could expect over $2bn inflows from the IMF and other multilaterals before reaching an agreement on a new package. The sources said that unlike the government’s estimate for increasing the tax-to-GDP ratio to over 10.1 per cent next year from the current 8.2pc, the IMF believed that the tax measures announced in the budget could hardly achieve a growth of 0.7pc to reach a tax-to-GDP ratio of no more than 9pc.
The sources said the IMF mission was also not satisfied with economic policy measures to achieve major macroeconomic targets over the next three years. It asked the government side to give a detailed presentation explaining how its policy direction could achieve these targets.
The sources said it was against this background that the IMF mission had extended its stay till July 4 because it felt that the mission’s visit had been scheduled prematurely without internal preparations.
Attempts to reach Finance Secretary Dr Waqar Masood Khan and Adviser on Finance and spokesman Rana Assad Amin could not materialise as a senior official said the finance minister had barred them from speaking to the media.
The government had been claiming that its fiscal framework would scale down the budget deficit from 8.8pc of GDP to 6.3pc next year, followed by a further 1.3pc reduction in 2014-15 and another one per cent in 2015-16. These would be enough to avoid tough IMF conditions.
The sources said the IMF mission during its extended stay would be able to witness approval of the budget by parliament and the announcement of the government’s energy policy to reduce power subsidies, improve energy mix, reduce line losses and strengthen the National Electric Power Regulatory Authority and the National Transmission and Dispatch Company and road map for tariff rationalisation. Official sources, however, claimed that the finance ministry and the State Bank were in the process of finalising a memorandum on fiscal and macroeconomic framework that would be shared with the IMF. It would be taken to the IMF board soon after the return of its mission so that fresh disbursements under the EFF could start flowing in the second quarter of the next fiscal year.
A road map for solving the energy sector’s circular debt problem and targeting subsidies to the poor and increasing social safety net through the Benazir Income Support Programme has been finalised and will be implemented later this month.
“We have put in place an agenda beyond the requirement of the IMF programme and hence we expect a flexible bailout package,” an official said.
If agreed, the extended fund facility will involve an effective interest rate of about 9pc and a repayment period of up to 10 years. Pakistan’s quota with the IMF currently stands at about 1.1 billion SDRs and since it will be availing an amount four times its quota, the total size of the programme works out at 3.5bn SDRs or $5.25 billion (1SDR=$1.5). In net present value terms, the EFF becomes comparatively cheaper given its longer repayment schedule.