Appeasing the International Monetary Fund has become an uphill task for the government, as the global lender has expressed its concerns over the budget and asked Pakistan to take more stringent measures in terms of tight fiscal discipline if the $6 billion loan programme is to be revived.
IMF Pakistan Representative Esther Perez Ruiz told that Pakistan needs to take more stringent measures to keep the Fund’s loan programme on track. She believes that the recently presented budget needs to be tweaked to align with the program’s key objectives with the International Monetary Fund.
On Friday, Pakistan unveiled its Rs9.5 trillion budget for 2022-23, which aims to tighten fiscal consolidation in order to persuade the IMF to resume much-needed bailout payments.
“The budget must be adjusted in accordance with the IMF loan programme. The Fund requires more information on the proposed revenue targets in the budget. There is also a need to review the financial plan’s expenditure estimates,” Ms Ruiz said, adding that budget talks with Pakistan were ongoing.
“Discussions with the authorities are continuing to provide more clarity on certain revenue and spending items, allowing for a comprehensive assessment,” Ms Ruiz said.
She said the fund was ready to continue to support the authorities’ efforts and in the implementation of policies to promote macroeconomic stability.
Finance Minister Miftah Ismail told Reuters on Saturday that the IMF had expressed concerns about the budget numbers, including fuel subsidies, a widening current account deficit, and the need to raise more direct taxes.
He, however, added that his government was confident they could adjust the budget to bring the IMF on board and was hopeful of securing a successful review this month.
Pakistan is halfway through a $6 billion, 39-month IMF programme that has stalled due to the lender’s concerns about the status of some of the program’s goals, such as fiscal consolidation.
Pakistan will receive $900 million in the next tranche if the review goes well, and an IMF approval would also open up other global funding options.
Pakistan urgently requires funds due to dwindling foreign exchange reserves, which have reached $9.2 billion, which is only enough to cover imports for less than 45 days.
According to Bloomberg, Pakistan’s plan to reduce its deficit by cutting spending may not be enough to persuade the IMF to resume its loan programme, according to Citigroup Inc. economists.
In a note to clients Monday, Johanna Chua and Gaurav Garg wrote that the tax-to-GDP ratio is expected to rise to 9.2 percent of GDP in the fiscal year beginning July 1 from 8.6 percent, which appears low compared to Pakistan’s emerging market peers and its own history. Interest payments are expected to account for about 44% of revenue.
“We await further fund feedback,” Chua and Garg wrote ahead of meetings between IMF staff and Pakistani officials scheduled for this month.
Pakistan is requesting a $900 million loan from the IMF right away in order to avoid a default. Soaring food and fuel prices have fueled Asia’s second-fastest inflation, while debt repayments have reduced Pakistan’s foreign-exchange reserves to less than $10 billion, or less than two months’ worth of imports.
According to Finance Minister Miftah Ismail, Pakistan will require at least $41 billion in the next 12 months, which analysts such as Saad Khan of IGI Securities Ltd believe will be met but only barely.
