ISLAMABAD: Accusing the PTI government of leaving behind an unprecedented economic mess, including the highest-ever fiscal deficit of Rs6.4 trillion (slightly over 10 pc of GDP), finance adviser in-waiting Miftah Ismail said on Tuesday the new government would restart negotiations with the International Monetary Fund (IMF) for balance of payments support.
“Stabilisation of declining foreign exchange reserves and increasing them is the most important thing,” he said. “Taking the IMF programme forward with mutual understanding is important.”
In reply to a question, he said that “we will take the existing programme forward and complete its three reviews”, which involve about $3 billion in outstanding disbursement, by September.
He was speaking at a hurriedly called news conference with former caretaker energy minister Senator Musaddiq Malik and former Sindh governor Muhammad Zubair.
Accuses PTI government of leaving behind unprecedented economic mess
Mr Miftah said the baggage left by the PTI government was such that all problems could not be overcome immediately, but at least the prices of items like wheat flour and sugar would be brought down immediately with the support of provincial governments.
“The Khan government has played havoc with the economy and lied to the nation that the relief package floated to save the government in its dying days is to be financed through additional revenues. In fact, it added to the fiscal deficit as there was no financing available,” Mr Ismail claimed.
“We will talk to the IMF immediately and negotiate. We will make our best efforts and hopefully agree things which are sustainable under the given circumstances,” he said.
“It is not possible to reduce inflation immediately because of the lag impact of the policies of fiscal and monetary expansion. First we will negotiate with the IMF and try to persuade them to ease the tough conditions so that the government could provide relief to the nation.”
He explained that the current account deficit (CAD) for the current fiscal year was estimated at $20bn — by far the highest ever. It meant Pakistan had to fund $6bn CAD on top of about $3bn debt repayments during the remaining period of the fiscal year. The financing needs for next year were estimated at $30bn.
“You need to finance this gap for which continuation of the IMF programme is necessary.”
He said the State Bank reserves currently stood at $11.3bn and unless there was an IMF programme, neither can there be assistance from friendly countries nor from the World Bank and Asian Development Bank nor the international bond market.
The former finance minister said he did not want to paint a doomsday scenario, but it was important to put on record what the PTI government had left behind and the numbers he was presented had been finalised by outgoing finance minister Shaukat Tarin and presented to the new coalition government by the finance ministry.
He said the previous government had put the fiscal deficit limit at Rs3.990 trillion, but it had now been estimated at Rs5.6tr, which is by far the highest-ever breach.
But that’s not all, they also left behind another Rs800bn worth of supplementary grants, taking the total fiscal deficit at Rs6.4tr. This also included Rs373bn worth of ‘highly explosive landmine package’ of reducing petroleum and electricity prices and then freezing them for four months when international prices were going up, besides Rs220bn required for gas companies to avoid bankruptcy and Rs80bn by generation companies just to remain afloat.
He said the numbers were finalised when Mr Tarin was finance minister that expenditures would be around Rs8.7 trillion this year against budget estimate of Rs7.5tr. This, however, did not include Rs800bn of supplementary grants that took total expenditures to Rs9.5tr.
He said the total debt since prime minister Liaquat Ali Khan to Nasir-ul-Mulk amounted to Rs25tr, while more than 80 per cent of that amount was built up by the previous government in just four years.
Asked about the increase in petroleum prices, Miftah Ismail said while a decision would be taken after looking into the working paper of the oil regulator on April 15, it was important to be known why the previous government backtracked from its commitments. He wondered why the government suddenly announced another amnesty scheme to please their friends for future incomes and assets as well while all previous amnesties had been offered to whiten past assets.
Miftah Ismail said that in his first meeting with economists, Prime Minister Shehbaz Sharif decided to hold two separate meetings with agriculturists and businesses to reverse the food import trend, which cost $8bn in buying sugar and wheat alone. On the other hand, the country used to export both products when PML-N was in power.
He said he would push for privatisation of Pakistan Steel Mills and Pakistan International Airlines while protecting their employees and offer power distribution companies to the provinces.
He said all-out efforts would be made to contain the deficits and criticised the PTI for reneging on commitments made to the IMF by offering an amnesty scheme for industrialists.
Published in Dawn, April 13th, 2022