IMF review has taken longer than it should have

ISLAMABAD: Minister for Finance Ishaq Dar Thursday said the next fiscal year budget would be a step in taking the country out of the economic quagmire, acknowledging higher inflationary pressure in the country.

Addressing a seminar on, “Reviving Economic Stability through Strengthening of Public Financial Management (PFM)” organised by the Finance Ministry the event, the finance minister said that preparation of the budget for the next financial year is about to start.

He added that the budget would also be responsive to gender needs and climate sensitive.

Dar further stated that participants must come up with policy suggestions and a solution for the revival of the economy so that the country can be put back on higher sustainable growth and accused the economic misstatement of the last few years responsible for this. He said that in 2018, Pakistan was considered an important place for investment but due to the wrong policy of the previous government, foreign investment has reached the lowest level during the last few years.

Import curbs to be eased after IMF review: SBP chief

The country witnessed a considerable increase in domestic and foreign debts in four years and consequently, the debt service has risen to Rs5 trillion. Due to increasing the policy rate, interest payments on loans have increased enormously, he added. He said that the government is committed to complete the IMF programme and are close to finalise the SLA and hopefully it would be done in the next few days.

He said that the government would provide more support to the flood victims.

He said that the previous government has violated the agreement with the IMF but the agreements made are not of an individual but of a state so the present government would fulfil them. He also recounted losses by the floods and wanted that everyone at this difficult time should contribute. He said the government has decided to implement austerity in the public sector.

The upcoming budget will be made on the basis of gender equality in which every gender will be taken care of. He said that the inflationary pressure is high and reforms in the power sector are being undertaken. Steps have been taken to increase the production of the agricultural sector and support provided through the agriculture package. All stakeholders are working to solve the problems of the energy sector. He added that the government has undertaken many measures and is moving in the right direction. He said that the debt-to-GDP ratio is not something to worry that there are many countries whose debt-to-GDP ratio is over 100 percent.

Dar added that petty politics were being done on the economy with persistent propaganda that the country is on the verge of default on international obligations which are ill-founded and mala fide.

A representative of the WB said that any country that spends its 70 percent revenue on pension, subsidies and interest payments, and less than one percent on development outlay cannot move on the path of development. To fix the current crisis and move towards sustainable economic growth, Pakistan needs to fix its budget and stated that the countries like India, South Korea, and New Zealand, have taken the opportunities presented by the economic crisis to pursue fundamental budget reforms.

He said that Pakistan is required to bring about reforms firstly, to improve its revenue by increasing the taxation on assets and property and closing the exemptions that cost considerable revenue every year.

He added that secondly, the government can cut spending by Rs340 billion on subsidies that primarily benefit the better off and thirdly, government can pursue overdue SOE reforms, realising savings of perhaps a Rs1 trillion in terms of reductions in subsidies and losses.

Additionally, the government can pursue sound implementation of public finance management law which would improve cash management functions and the implementation of a treasury single account. He said that as per their estimate, these technical reforms alone could save up a significant amount every year. He said that now is the time for reform and the government clearly recognises the challenges and important steps needed to be taken.

Reuters adds: Finance Minister Ishaq Dar said on Thursday his country was “very close” to signing a staff level agreement with the International Monetary Fund, which would offer a critical lifeline for taming a balance of payment crisis.

An agreement would release $1.1 billion to the cash-strapped South Asian economy.

“We seem to be very close to signing the staff level agreement, hopefully, God willing, in the next few days,” Dar said at a seminar in Islamabad.

“I and my team are absolutely committed to complete this program to the best of our ability,” he said, adding: “We have been in the review and I think it has taken longer than it should have in my opinion.”

Islamabad has been hosting an IMF mission since early February to negotiate the terms of a deal, including the adoption of policy measures to manage its fiscal deficit ahead of the annual budget due around June.

The funds are part of a $6.5 billion bailout package the IMF approved in 2019, which analysts say is critical if Pakistan is to avoid defaulting on external debt obligations.

Dar said the current crisis was deeper and more complex than the two prior experiences he had overseen as finance minister, but he was confident the economy would be pulled out of the “quagmire”.

He said reforms in the energy sector, which has piled up more than four trillion rupees ($14.18 billion) in debt, were the most critical to get the economy back on track.

“The power sector has to be structurally reformed and fixed and let me endorse that the issue was and has been very grave,” he said.

The IMF deal would unlock other bilateral and multilateral financing avenues for Pakistan to shore up its foreign exchange reserves, which have fallen to just four weeks’ worth of import cover.

Islamabad has met most of the lender’s demands to clear the review. The last one yet to be fulfilled on the list is an assurance on external financing to fund its balance of payment gap for the current fiscal year, which ends on June 30.

Long-time ally China is the only country that has announced refinancing of a $2 billion loan, and Pakistan’s central bank has already received $1.2 billion of that amount.

Pakistan had to complete a series of prior actions demanded by the IMF, which included reversing subsidies in the power, export and farming sectors, a hike in energy and fuel prices, a permanent power surcharge, jacking up the key policy rate, a market-based exchange rate, and raising over 170 billion rupee($613.17 million) in new taxation through a supplementary budget.

The rupee depreciated 1.19% against U.S dollar in inter-bank trading in Thursday’s opening session, but recovered almost half of its losses by afternoon. It has lost around 20% of its value so far this year, extending a near 30% drop in 2022.

The fiscal adjustments have already fuelled 50-year record high inflation, which hit 31.5% year-on-year in February.

“I believe that we’ve to work together to control the current inflationary pressures,” Dar said, adding, “they’re unprecedented.”

Copyright Business Recorder, 2023