The Ministry of Finance last Thursday briefed the PM about the country’s weakening external sector and budgetary positions and the implications of the irrational decision of the previous government to give Rs372 billion in energy subsidies during its last days in power.
“PM Shehbaz has asked me to engage with the IMF, as the government is keen to remain in the IMF programme,” confirmed Dr Miftah Ismail.
The IMF programme has been stalled for the third time in the past three years after the 7th review talks collapsed because of the PTI government’s decision to give fuel subsidies and a tax amnesty scheme. Of the $6 billion, the $3 billion loans remained undisbursed, with only five months remaining in the programme’s expiry.
The IMF-World Bank spring meetings are starting this week in Washington and a finance ministry delegation would go there to meet the IMF officials on the sidelines, the ministry officials said. However, Ismail said that he could not leave for Washington until his name was removed from the Exit Control List.
Miftah was among those politicians who had been arrested, and the National Accountability Bureau put his name on the ECL, without evidence of alleged corruption.
But State Bank of Pakistan Governor Dr Reza Baqir and his Deputy Dr Murtaza Syed have separately planned a visit to Washington, although they did not have any face-to-face meetings during the annual conclave.
Sources said that the new government had started looking for a replacement of Dr Baqir, who is going to complete his term on May 4. There was a possibility of appointing a banker as the new central bank governor, a senior PML-N leader said.
Besides changing the governor, the government is also short-listing names for the post of the new chair of the Federal Board of Revenue.
The prime minister showed concern over the worrisome economic indicators, according to a statement issued by the PM Office. The premier directed the economic team to prepare a comprehensive economic reforms plan to come out of the crisis; it added.
IMF programme likely to resume
Pakistan cannot avoid the IMF programme at this stage, as the last PTI government has left behind only $10.8 billion gross official foreign exchange reserves –hardly $1 billion higher than the level in June 2018 and barely sufficient to back seven weeks of import payments. The $10.8 billion reserves include the $4 billion Chinese deposits, $3 billion Saudi deposits and $2.5 billion UAE deposits that the government cannot use.
The finance secretary briefed the PM about the fiscal situation, saying that in the baseline scenario, the budget deficit in the current fiscal year could end up at Rs4.8 trillion, excluding the demands for additional supplementary grants. In case of authorising the additional expenditure, the federal budget deficit could jump to Rs5.6 trillion. It will be equal to 8.7% of the GDP, the PM was informed.
The ministry sought PM’s instructions on whether to incur additional expenditure through supplementary budget that is demanded by various ministries and state-owned enterprises for remaining afloat; the sources added.
The last PTI government had made a promise with the IMF to deliver a primary budget surplus of Rs25 billion but because of its unreasonable expansionary fiscal policies, the finance ministry has now estimated a primary deficit of Rs1.65 trillion, which is equal to 2.6% of the GDP.
The PM was told that the government did not have fiscal space to continue various packages, as there is nothing to give to the IMF in lieu of continuing the fuel subsidies, the sources said.
The ministry informed about the fiscal impact of the fuel subsidies and requested the government to take a decision. The sources said that the PM first wanted to have consultations with the coalition partners, as it will be a politically unpopular decision to increase per liter prices by Rs50 to withdraw subsidies and also partially recover taxes.
However, there is a possibility that the government in the first stage would only withdraw subsidies that too in phases, as per litre subsidy was estimated around Rs35. The previous government had not approved the supplementary budget for April 1 to 15 period to cover these injections.
There was a realisation in the new government that it could not continue the fuel subsidies.
The World Bank on Wednesday urged Pakistan to withdraw the “unsustainable and ineffective subsidies”. In case of a delay in reviving the IMF programme, the new government might also face difficulties in getting around $800 million to $900 million for two policy loans from the WB.
The sources said that some of the important decisions were also pending because of a delay in forming the new cabinet.
The PM was also informed about the limited fiscal space for the development activities. The ministry also said that the country would achieve the current year’s economic growth target of 4.8%, although the international financial institutions and the SBP were projecting a lower growth number.