Government faces fiscal crunch as IMF talks begin today

The logo of the International Monetary Fund is displayed on a wall in this undated photo.  - Reuters/File
The logo of the International Monetary Fund is displayed on a wall in this undated photo. – Reuters/File

ISLAMABAD: The International Monetary Fund (IMF) is expected to discuss the deteriorating fiscal situation, which has been significantly hit by debt payments that have eaten up the net revenue receipts of the federal government in the first quarter of the current fiscal year, according to reports. news on Thursday.

The IMF mission is expected to reach Pakistan today and stay till November 16 for review ahead of the second tranche under the $3 billion Stand By Agreement (SBA).

Despite releasing funds for development projects and reducing subsidies to minimum levels, the Government should insist on restricting the budget deficit within the desired limits and converting the primary deficit into surplus, especially for the first quarter of the current financial year. Has been.

“The IMF can enhance the sustainability of such a tight fiscal situation at a time when the government released development expenditure of just Rs 40 billion against the allocation of Rs 950 billion and subsidies at Rs 2.5 billion against the budgetary allocation of over Rs 1,002 billion. Limited. ,” sources said news,

However, finance ministry officials believe policy rates are likely to decline, and they plan to finance the budget deficit over the long term rather than relying on treasury bills and domestic bonds in the short term.

“The average time to maturity will be extended as much as possible to reduce the debt servicing bill in the remaining period of the current financial year,” the official said. The official claimed that the debt service bill for the current fiscal year will be reduced within the allocated range of Rs 7.3 to 7.5 trillion.

Debt repayments consumed Rs 1.4 trillion in the first quarter of the current fiscal year with a policy rate of 22%. State Bank of Pakistan (SBP) on Wednesday raised Rs 1,148 billion against the target of Rs 975 billion, which is Rs 173 billion more than the target.

12-month yields fell 40 basis points. The yield for 3 months is 21.94%, for 6 months is 21.98% and for 12 months is 21.99%. So overall the market is indicating a slight cut in policy rates.

But the question is how the government will meet its increasing revenue and expenditure requirements in the remaining months of the current financial year.

When contacted, Dr Khaqan Najib, former advisor to the Finance Ministry, said the IMF program is managed through precedents, structural benchmarks, indicative targets and performance criteria.

“It is safe to assume that the first quarter targets agreed with the IMF on fiscal, energy, monetary and external are likely to be largely met. The fiscal year showed a lower deficit of 0.9% and a primary surplus of 0.4% compared to the previous year. The figure for meeting the expenditure on income support of Rs 87.5 billion is also likely to be met. SBP is yet to publish details of the stock of net international reserves, net domestic assets and net foreign exchange swaps of the SBP. But we are being assured that the numbers are looking comfortable. There is probably no fresh borrowing by the government from SBP and the amount of government guarantee is also within the agreed limit. Hopefully, the energy standards are also within the agreed limits,” said Dr Najeeb.

Dr. Najib said the quality of adjustments made by Pakistan in reaching the first quarter targets will also be reviewed by the IMF.

“This review will impact the determination of how FY24 figures will be completed. There will likely be talks on the outside where credit flows and exports are slower than anticipated. The IMF is likely to discuss the risks to the FBR collection target of Rs 9,400 billion, which now requires a higher growth of 33% compared to last year, as well as the need to accelerate refund allocation, the former adviser said. Is.

The increased expenditure requirements on debt servicing of over Rs 1,000 billion compared to the budgeted amount of Rs 7,300 billion as well as the possible shortfall of exaggerated provincial surpluses of Rs 600 billion will come under scrutiny by the IMF. He concluded that this would set the tone for the updated memorandum of economic and financial policies.

Originally published in news

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