IMF visit is postponed because of the cost of the flood
ISLAMABAD: Pakistan and the IMF have developed disagreements on the financial impact of the flood damages, which has significantly delayed the dispatch of an IMF mission to Islamabad for the next review of its loan program.
According to a finance ministry assessment, the main budget deficit in the current fiscal year could reach over Rs2.2 trillion without extra steps, sources told The Express Tribune. Both parties have been working to close the gap in light of this information.
A senior government official stated, “Although the figure is still speculative, our assessment has indicated that the primary budget deficit — the revenues after paying the interest cost — could be as high as 2.8% of the GDP or Rs2.2 trillion.”
The estimated amount is significantly higher than the primary budget surplus target of 0.2% of GDP that was set with the IMF in the pre-flood scenario.
The dilemma, according to the sources, is that the slippages are primarily due to non-flood factors.
They further stated that the floods’ impact on the budget was less than 0.2% of the GDP.
According to the sources, there was continued disagreement over how much of the $16 billion estimated reconstruction cost should be accounted for in the current fiscal year during a recent meeting with IMF Resident Representative Esther Perez.
According to Pakistan, the cost of reconstruction had no appreciable effect on the remaining time of the program, which expires in June. The IMF, however, rejected it.
Next week, Pakistan will provide the IMF with updated data that will help the international lender decide whether to schedule a mission to Islamabad this month or postpone it until December.
There are still $3 billion in unpaid IMF loan funds that can only be released until three reviews have been completed.
Aside from disagreements over the fiscal framework, Pakistan has struggled to comply with other IMF requirements, such as raising electricity tariffs.
According to the updated timeline agreed upon in June, the IMF was supposed to send a mission to Pakistan in October for the 9th review, paving the way for the delivery of a further tranche of around $1.2 billion on November 3.
But under the guise of things that can be resolved, the global lender is taking longer than expected.
“Pakistan has been requested by the IMF to assess how the floods have affected the economy and budget. The dates of the IMF mission’s arrival won’t be known until the ramifications are understood, according to Dr. Aisha Ghaus Pasha, the state minister of finance.
The dates of the visit were unclear, she continued because the investigation of the flood’s effects was still lacking.
The IMF remains engaged with the authorities under the current program to support their efforts to provide relief to the vulnerable population affected by the floods and advance reconstruction efforts while ensuring sustainable policies, the resident representative of the global lender said in a succinct statement last week.
However, when asked if a date was set in stone or not, she remained silent.
According to the sources, the primary budget deficit, which is now estimated to be around 2.8% of the GDP, has been causing slippages, which are the main problem.
They mentioned that the expected cost of budgeted debt payments was less than Rs4 trillion.
However, they said, the updated calculations suggested that the debt burden could increase to above Rs4.7 trillion.
The sources further indicated that the petroleum levy collections may fall short of the planned objective of Rs. 855 billion by at least Rs. 300 billion.
According to them, the combined effect of high debt servicing costs and low petroleum levy collection was roughly 1.3% of GDP.
Even though the International Monetary Fund (IMF) has already demanded that additional taxes be imposed in the amount of Rs600 billion, the Federal Bureau of Revenue’s (FBR) collection could fall short of the annual target of Rs7.470 trillion.
Additionally, the government has offered an agricultural package and a subsidy of Rs100 billion, but only to exporters. The results of these initiatives are uncertain.
The situation at the finance ministry has become more complicated as a result.
The farmers desperately needed flood relief due to the devastation that the floods caused to their crops, and the ministry has been trying to include some of the cost of the agricultural package there.
Subsidizing exporters, who have been draining national resources for years without contributing much in return, is problematic.
According to the finance ministry’s estimate, exporters benefited to the tune of Rs536 billion from various forms of subsidies and cheap loans in the previous fiscal year.
For the current fiscal year, the central bank predicts a current account deficit of less than $10 billion—substantially less than the figure calculated by the World Bank.
According to the sources, the external financing requirements are another problem that the finance minister, Ishaq Dar, has been attempting to solve by making requests to the United Arab Emirates, Saudi Arabia, and China.
In February 2019, the United Arab Emirates must repay a debt of $2 billion. This week, the finance minister reportedly asked the UAE to extend the deal for another year.
