ISLAMABAD: The government on Friday said its reform agenda signed with International Monetary Fund (IMF) was on track and the progress so far on nearly all the performance and structural benchmarks for first quarter of the current fiscal year were very encouraging with strong indication that all the targets will be met.

“The progress on nearly all the performance and structural benchmarks during Q1FY20 is encouraging and targets will be met. Finance ministry is fully committed along with the IMF towards the ongoing reforms programme”, said the ministry of finance.

The ministry was apparently compelled to issue the statement after certain media reports about programme renegotiation owing to major fiscal slippages on the conclusion of fiscal year 2018-19. The ministry said it believed the “targets under IMF programme are ambitious, there is no need to renegotiate.”

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

It said the ministry will meet next week with Azour and apprise him on the results achieved so far. “However, this is not an IMF review mission as certain segments of the media have suggested”. The visit of Azour was planned for September soon after the finalisation of the Extended Fund Facility programme.

Coming Fund team visit is routine, not a ‘review’

IMF technical levels talks are expected be held at a later stage after completion of first quarter of the year and will provide both teams the opportunity to review progress made to date, it added.

IMF Country Representative to Pakistan Teresa Daban Sanchez tells Dawn that the IMF programme for Pakistan “will be monitored and reviewed according to the calendar of reviews established in the programme documents. The first one is scheduled for December.”

The language suggests that Azour’s visit is not a “review mission”.

She said the visits by IMF teams are a part of their routine work with country members. The IMF is at present in the process of preparing a staff visit for the period Sept 16-20, she said. At this stage, she could “only but reiterate the Government of Pakistan’s strong commitment to the policies and reforms spelled out at the IMF-supported programme.”

Fiscal framework

The ministry also dispelled an impression that the government will face a gap of up to Rs1 trillion in the FY20 fiscal framework. It said the 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 escalation on border with India which contributed to the fiscal deficit rising to 8.9 per cent of the GDP, against target of 7.2pc.

It said the State Bank of Pakistan had taken a policy direction to correct the large trade deficit and shore up foreign exchange reserves.

These measures have helped to reduce the Current Account deficit (CAD) to $13.5 billion in FY19, down from $19.9bn 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 Rs104bn to the overall slippage.

On the other hand, the devaluation of the currency eroded profits of the SBP for FY19, with a shortfall of Rs135bn in non-tax revenue.

Non-tax revenue shortfall was exacerbated by the litigation by the telecom operators on renewal of the 3G/4G licenses, and revenue of Rs80bn did not materialise in FY19. This matter is now partially resolved with telecom operators depositing Rs70bn in September as the case continues. The government also faced a shortfall of Rs85bn from interest receipts from PSEs (NHA, WAPDA etc).

The Rs321bn tax revenue shortfall was the single biggest reason for the increase in the fiscal deficit and it was driven by a fall in imports (which account for 45pc of total FBR tax collection in customs duty, general sales tax (GST) and excise).

However, other key factors also contributed. Most notably, the decision of the government to shield domestic consumers from rising oil prices resulted in over Rs100bn shortfall in GST collection.

Against a revised target of 7.2pc of GDP (published in April), at the outset of the programme — the fiscal year closed at 8.9pc of GDP indicating a slippage of Rs686bn, the ministry conceded.

Published in Dawn, September 7th, 2019