IMF to start review Macroeconomic indicators

[Lahore_Real_Estate]

ISLAMABAD: With the first quarter fiscal deficit exceeding the budget target, Pakistan officials and International Monetary Fund (IMF) will start a week-long review of macroeconomic indicators here on Oct 27 which will determine if Islamabad can draw the next tranche of $1.7 billion.

Informed sources said the first quarter (July 1 – September 30, 2010) results of the provisional fiscal operation were presented to a meeting presided over by Finance Minister Dr Abdul Hafeez Shaikh on Sunday.

“The IMF is unlikely to agree to the release of $1.7 billion before December, at least on the basis of expenditure and revenue position,” a senior government official told Dawn.

He said the meeting decided not to release the figures to the public before the arrival of the IMF review mission. Under the agreed public disclosure policy, the government is required to make public its financial results 15 days after the completion of every quarter.

It was for the fourth quarter in a row, said the official, that Pakistan had not been able to meet the fiscal deficit target.

The IMF stopped payments to Pakistan under $11.3 billion standby arrangement (SBA) in June this year following slippages on the fiscal deficit front for three consecutive quarters beginning September 2009.

The 25-month SBA was to conclude in November this year, but about $4 billion worth of two instalments are yet to be paid to Pakistan.

Officials said the government had agreed with the IMF in August this year in Washington to limit the first quarter fiscal deficit at 1.4 per cent of gross domestic product (GDP).

The government had announced in the federal budget 2010-11 to have a fiscal deficit of about 4 per cent of GDP or Rs685 billion.

However, this target was later increased to 4.7 per cent of GDP or Rs804 billion in consultation with the IMF in August. That meant the first quarter deficit target at 1.4 per cent or Rs201 billion. As the financial results for the first quarter were finalised on Sunday, it emerged that fiscal deficit exceeded to Rs275 billion or 1.6 per cent of GDP.

This means that the gap between the government’s expenditure and revenue has exceeded the permissible limit by about Rs75 billion. The size of GDP at market price is estimated at Rs17,107 billion for the current year.

The official said the only way to get a favourable response from the IMF for the release of next tranche was to generate significantly higher revenues than earlier estimated, but first quarter revenues at Rs290 billion have remained short by a wide margin with the target being Rs337 billion.

“The lack of preparedness to effectively introduce reformed general sales tax has already been pointed out by the tax reforms coordination group,” said the official.

Already, the government has been under pressure from international lenders to spare at least Rs180 billion through cuts in expenditure and higher revenue generation to meet the deficit target of 1.4 per cent of GDP.

A senior government official when contacted by Dawn to comment on the latest fiscal operations figures and its impact on IMF programme said the government was not concerned whether or not it gets next two tranches from the IMF as per original schedule, but it was more interested in continuing with programme to ensure fiscal discipline.

He said the remaining amount from IMF could be realised after the presentation of mid-year budget in December to meet international commitments and higher fiscal requirements to rebuild flood-affected infrastructure.