IMF concerned over rising expenditure, inflation

[Lahore_Real_Estate]

ISLAMABAD: A visiting mission of the International Monetary Fund (IMF) has expressed concern over uncontrolled expenditure, rising inflation, slow revenue reforms and poor performance of the power sector.

The IMF mission, led by Assistant Director for Middle East and Central Asia Adnan Mazarei, has concluded its initial discussions with Pakistani authorities on the latest macroeconomic indicators.

According to an official statement issued on Sunday, the mission “discussed the issues of performance criteria and the prior actions pertaining to the fiscal and monetary factors” with Finance Minister Dr Abdul Hafeez Shaikh and his team.

The two sides “agreed to continue the discussions on the programme review in the first week of August in Washington”.

An official told Dawn that “there were issues that lacked clarity on part of government policies and raised uncertainty about the continuation of the ($11.3 billion IMF) programme”.

The next round of talks in the United States will be crucial for the government to persuade IMF’s senior management and board of directors to approve release of the remaining two instalments of $2.6 billion.

The mission, said the official, was provided the latest economic data for the financial year that ended on June 30.

The mission was informed that the overall fiscal deficit for the last financial year had provisionally been estimated at around 6.2 per cent against an agreed target of 5.1 per cent of the Gross Domestic Product, although final figures on provincial expenditures were yet to be reconciled.

The delegation was informed that net revenue collection, after payment of refunds, was now estimated at around Rs1,325 billion, against an annual target of Rs1,380 billion. As of now, the Federal Board of Revenue has recorded its collection at Rs1,320 billion and the shortfall is likely to be Rs55-58 billion.

The mission expressed concern over slippages on fiscal deficit limits for the fourth consecutive quarter and warned the authorities that they would need to work really hard to get a waiver on the criteria.

The sources said the mission expressed concern over rising inflation and advised the authorities to revise their estimates to about 11 per cent from 9.5 per cent forecast by the finance ministry.

The mission expressed anxiety over the non-implementation of value added tax (VAT) from July 1 and over the uncertainty about the introduction of a reformed general sales tax (GST) by Oct 1.

In particular, it was worried that the federal and provincial governments did not appear to be on the same wavelength over the reformed GST. This could jeopardise most of the economic targets and the macroeconomic stabilisation programme going forward.

The sources said the IMF mission was perturbed over continuous revenue leakages in the power sector and heavy system losses and stressed the need for increasing electricity tariffs by about 49 per cent during the current fiscal year to bridge a wide gap between revenue requirement and collection of power bills.

The IMF team was informed that increase in power tariff to the extent of 33 per cent during the year was under consideration.