Ahead of its crucial talks with the cash-strapped Pakistan government, the IMF has found an over Rs 2,000 billion breach in budgetary estimates for 2022-23 in its initial assessment that might result in escalating the budget deficit and primary deficit targets with a massive margin.
Pakistan and the International Monetary Fund (IMF) officials are scheduled to kick-start parleys from Tuesday for accomplishing the ninth review under the Extended Fund Facility during which the fiscal slippages and reconciliation of figures will be the major topic of discussion.
The review would lead to the release of the next tranche of funds to Pakistan which has been pending since September. The government had envisaged a budget deficit target of 4.9 per cent of the gross domestic product (GDP) and a primary deficit to keep it at positive 0.2 per cent of the GDP on the eve of the budget announcement for 2022-23.
According to sources quoted by The News, the IMF is currently asking Pakistani authorities to take additional taxation measures worth Rs 600 billion through a mini-budget.
The sources told the newspaper that Pakistani authorities did not agree to it at all and argued that the primary deficit would not escalate up to such an extent at all.
The IMF has identified a breach worth Rs 2 trillion in budgetary estimates for the fiscal year 2022-23, warning that the primary and budget deficits could escalate with a massive margin, the report added.
The senior officials of the IMF have also taken the decision that they will incorporate a hike in circular debt of Pakistan’s cash-bleeding energy sector beyond the agreed limit with the lender of the last resort as part of the primary deficit for the current fiscal year 2022-23.
Meanwhile, Pakistan has requested the IMF for a waiver of Rs 500 billion on account of flood expenditures for calculating the budget deficit, especially the primary deficit for the current fiscal year 2022-23.
“The IMF has so far calculated that the primary deficit target of 0.2 per cent of GDP will be breached with a massive margin with a whopping figure of over Rs 1 trillion,” sources were quoted as saying by the report.
The IMF further assessed that the coalition government did not recover the fuel price adjustment of Rs 65 billion for the current fiscal year. The government doled out concessional electricity and gas to the export-oriented sectors which resulted in an increased requirement of Rs 110 billion.
Pakistan is facing the worst economic crisis as its reserves have dropped to a critical level of USD 3.7 billion and need urgent support to avoid default.
The IMF is the only forum that can save the country. But many people wonder about the future of the country without any long-term planning in sight to tackle similar economic situations.
Pakistan secured a USD 6 billion IMF bailout in 2019.
It was topped up with another USD 1.1 billion in 2022 to help the country following the unprecedented floods. But the IMF suspended disbursements in November due to Pakistan's failure to make more progress on fiscal consolidation amidst political turmoil in the country.
Meanwhile, Dawn newspaper in its editorial on Saturday said that while it is crucial to seek immediate IMF funding to shore up its reserves, the government shouldn’t focus only on short-term relief.
“The current loan package is set to end on June 30, and if there’s no new snag, we will get up to USD 3 billion in funding from the lender. This may take care of our immediate balance-of-payments needs but will not be sufficient to cope with a similar payments crisis the next fiscal year and beyond. It is, therefore, advisable that the government seek to increase the size of IMF funding and the programme, and extend its duration,” the editorial said.
