IMF sure to give us a tough time
Business Sunday, February 21st, 2010Pakistan is expected to face stiff resistance in getting the country’s newly agreed budget deficit of 5.1 per cent approved in the IMF Executive Board meeting, scheduled for February 24, in Washington to qualify for the next tranche of $1.2 billion. Opposition by certain member countries is being apprehended by Pakistan’s financial minders.
“The economic wizards’ team, headed by Finance Minister Shaukat Tarin, during the Dubai talks actually wanted the surge in budget deficit up to 5.3 per cent from 4.9 per cent, but the IMF staff mission, led by Adnan Mazarei, told Pakistan in plain words that there were some member countries in the IMF Executive Board, which would not extend this relaxation to Pakistan,” one of the senior FBR officials, who was part of the crucial talks with the Fund staff mission, confided to our sources.
The US, Germany and the UK have traditionally supported Pakistan within the IMF. Even India extends support in the Executive Board meeting, but there are some three to four countries, surprisingly headed by Egypt, the Muslim brotherly country, which in the earlier meetings of the board had opposed granting further relaxations to Pakistan for future tranches despite its peculiar issues like the war on terror etc.
Pakistan adopted the aggressive posture while seeking the 5.3 per cent budget deficit target, arguing that the country had been exposed to massive increase in security-related expenditures and the United States so far had not paid its war bills amounting to $1.3 billion. However, there are some indications that the US would soon pay $349 million out of $1.3 million to Pakistan under the head of the Coalition Support Fund.
“So, the 5.1 per cent fiscal deficit will be the one for which they would easily convince the board member countries,” the IMF staff mission came with the argument while trying to convince the Pakistan delegation in Dubai. This was the main reason that Pakistan agreed to 5.1 per cent budget deficit target by surrendering its demand of 5.3 per cent.
Now to achieve the target of 5.1 per cent, Pakistan will slash down the development budget to somewhere between Rs 270-280 billion, but the Finance Ministry wants the development budget to be brought down to Rs 250 billion. The IMF has been asked that Pakistan would increase its revenue to Rs 1,380 billion, which is still difficult as only 4 months left to end the current fiscal, not enough time to achieve the target.
However, the official feared that Pakistan might not remain within the newly agreed 5.1 per cent budget deficit, rather it would exceed keeping in view the increasing defence and security-related expenditure and debt servicing. The official said the IMF had also identified the inter-corporate circular debt in the energy sector as a major issue of Pakistan.
The Fund has expressed it dismay over the failure of the government to resolve it once for all despite the fact the government has generated twice the amount required to retire the circular debt by marketing its TFC (Terms Finance Certificates) to the banks.
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on Feb 21 2010. Filed under