ISLAMABAD: Following the worsening fiscal front of the economy, the IMF has decided to send its SOS (Save Our Soul) mission to Pakistan this month to suggest ways and means to reduce the huge budget deficit.
The IMF team will discuss fiscal issues with a special approach to restrict the primary deficit target within the desired limits. Initially, Pakistan has presented the option of renegotiating the objectives set out in the IMF program in the context of new emerging realities on the fiscal front, as the quarterly FBR objective has been asked to review downwards of Rs 1,071 trillion. to more than one billion rupees by the end of September 2019.
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A videoconference held between Pakistan and the IMF team on Wednesday night in which Fund staff expressed serious concern over the sharp increase in the budget deficit in the last fiscal year ending June 30, 2019 and showed that all The projections were incorrect by the IMF and Finance Ministry at the time of negotiating an agreement with the IMF of $ 6 billion under the 39-month Extended Fund (EFF).
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The IMF team will make a staff visit to Pakistan from September 16 to 20, Teresa Dabán Sanchez, IMF Resident Chief in Pakistan confirmed to The News on Thursday night. “An INF technical team is scheduled to visit Pakistan after Ashura Moharram, probably since September 17 for staying here for 10 days,” official sources said. The IMF review was expected to take place in November, but the decision to send this technical mission suggests that the IMF is not happy with the massive landslides on the fiscal front.
Fiscal objectives, especially the primary deficit, have been massively misaligned, as the IMF has put conditions to reduce the primary deficit from 1.8 percent of GDP to 0.6 percent of GDP in the current fiscal year. Now the primary deficit had risen to 3.6 percent of GDP and nobody knows how massive adjustments of Rs 1.3 billion could be made to reduce the primary deficit to 0.6 percent of GDP.
“Yes, an IMF technical mission will arrive in Pakistan within this month,” the main official sources confirmed as they spoke with The News here on Thursday. They said that the next technical mission will provide assistance to the Ministry of Finance and other ministries / departments on the collection of tax and non-fiscal revenues, repair the bleeding state entities and design a strategy on issues related to the central bank front.
The IMF team asked about the reasons for the escalation of the budget deficit, since both parties had estimated in April 2019 that the budget deficit could reach 7.2 percent of GDP for the last fiscal year 2018-19, so This projection became the basis of the IMF program with the projected primary deficit at 1.8 percent of GDP.
“When the basis of the IMF program has shaken the guarantee that the objectives set for the current fiscal year will materialize,” the IMF side raised the question. The Pakistani team explained that the RBA faced a deficit due to the variety of policy problems and the economic slowdown. On the front of non-tax revenues, they said that the renewal of the licenses of mobile operators could not materialize in the last fiscal year, but now Rs70 billion have been received. Two RLNG plants could not be sold and they hoped that this transaction would take place in the first half of the current fiscal year. The SBP benefit plummeted due to devaluation. All these negative developments contributed to the increase of the budget deficit to 8.9 percent of GDP during the last fiscal year.
Regarding the objectives of the current fiscal year, the FBR told the IMF team that they were going to collect annual taxes of Rs5.5 trillion provided with some prerequisites in the form of technology deployment and allowing an effective application, but first quarterly target must be reset down. The FBR could raise Rs425 billion to touch the psychological barrier of raising Rs1 billion in the first three months of the current fiscal year.