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Spinning fiscal numbers

Updated December 04, 2017

AS Pakistan enters the next round of talks with the International Monetary Fund (IMF) under Post-Programme Monitoring (PPM), the Ministry of Finance has revised crucial financial data through a belated release of the July-September report on the country’s fiscal operations.

The PPM engagements, running from Dec 6 to Dec 14, are likely to see the publication of Pakistan’s debt management report pending since March. The previous schedule followed under the IMF’s Extended Fund Facility (EFF) should have seen two more quarterly debt reports by now.

Pakistan is required to undergo a tight PPM arrangement in view of its outstanding credit exceeding 200 per cent of its quota in addition to annual Article IV consultations. Most of the reforms committed with the IMF have already come to a grinding halt after the final disbursements by the Fund last year.

The finance ministry has not released any debt management assessment report since December last year. The government has also been selective in releasing financial data and continues to move goalposts

The PPM talks are taking place in the absence of a full-time leader of the economic team, which now comprises Prime Minister’s Special Assistant on Economic Affairs Miftah Ismail, outgoing Secretary Finance Shahid Mahmood and State Bank of Pakistan’s (SBP) governor Tariq Bajwa. In the meanwhile, the government has already notified Mr Mahmood’s retirement from service with effect from Jan 6.

With a major adjustment, the ministry revised upward the first-quarter fiscal deficit at 1.2pc of GDP, or Rs431 billion. On Oct 9, the finance ministry, led at the time by Ishaq Dar, put the first-quarter deficit at 0.9pc of GDP (Rs324bn). However, based on revised numbers, the full-year deficit of 4.1pc appears a distant dream and poised to touch at least 5pc of GDP.

The Ministry of Finance added a new spin to the change in numbers. “The deficit figure reported earlier was based on daily cash balance reports of the SBP which did not include financing on account of project aid and financing from National Savings Schemes,” a finance ministry spokesman said.

He said the financing from project aid was substantially higher on account of roads and infrastructure. Around 47pc of the budget estimates were received as project aid financing on this account during the quarter, mainly in September.

Incremental receipts on account of National Savings Schemes have recently been reported by the SBP. Federal government’s deposits with the central bank also declined during September.

Therefore, after including the aforementioned financing data, overall fiscal deficit for July-September amounted to 1.2pc of GDP, he said, but did not clarify why these numbers were not considered while finalising accounts on Oct 9.

Interestingly, the revised data was released after roadshows for international bonds that secured $2.5bn in Islamic and conventional Eurobonds, helping rebuild foreign exchange reserves well above $22bn, including more than $16bn in the official account, comfortably above the crucial $14bn level.

The finance ministry has not released any debt management assessment report since December 2016. The government has also not published the quarterly report on energy sector reforms since March after it failed to abide by a plan to cap the circular debt.

Most observers had been sceptical of PML-N’s commitment to follow fiscal discipline after the end of IMF’s $6.3bn EFF programme in October last year. In the previous fiscal year, the government ended up with a fiscal deficit higher by two percentage points than the target.

The government has been selective in releasing financial data and continues to move goalposts. However, it claimed last week that the accounts have now been finalised.

Total consolidated federal and provincial revenue has now been put at Rs1.025 trillion after a year-on-year rise of 18.9pc. Tax collection by the Federal Board of Revenue amounted to Rs765bn, a jump of 20pc. Non-tax receipts for the period were Rs114bn, whereas total expenditure amounted to Rs1.466tr, including current expenditure of Rs1.241tr and development expenditure of Rs221bn.

According to the finance ministry, the provisional gross public debt has increased by about Rs652bn during July-September. The domestic debt increased by Rs853bn in the first two months of the current fiscal year, and finally settled at Rs520bn at the end of the quarter.

Similarly, provisional external public debt rose by about Rs132bn, predominantly driven by translational losses as international currencies strengthened and the rupee weakened against the dollar, the finance ministry said.

Published in Dawn, The Business and Finance Weekly, December 4th, 2017