IMF raises questions over measures to rein in fiscal deficit

IMF pondered over how the government aimed to achieve the projected fiscal deficit target of 5.1% when the development programme had been slashed severely

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ISLAMABAD: Pakistan and the International Monetary Fund (IMF) commenced their policy discussions on Monday aimed at reining in fiscal deficit and deliberate on economic and fiscal adjustments required to obtain a bailout of approximately $6 billion.

A draft Memorandum of Economic and Financial Policies (MEFP) had been composed by the Ministry of Finance in deliberation with other economic ministries which was the focal point of discussion with the IMF, said a senior government official, reports Dawn.

The official stated the backbone of the discussion was to bring the deficit to a level agreeable to the IMF since economic stabilization is going to be the eventual aim for which both sides are appraising revenue measures and expenditure controls.

He added, the IMF had queried about the external debt repayment plans. Also, the Washington-based lender raised queries regarding the Rs90 billion revenue shortfall during July-October of the current financial year 2018-19.

IMF pondered over how the government aimed to achieve the projected fiscal deficit target of 5.1% when the development programme had been slashed severely.

And the IMF queried regarding the revenue measures being taken to replenish the losses incurred so far and what the policy plan was going forth.

The delegation was informed that the Federal Board of Revenue (FBR) was forwarding notices to high net worth people based on available data of those who were staying in luxurious areas, having lavish lifestyles and air travels etc.

The Washington-based lender expressed displeasure over the power sector’s performance whose losses and recoveries are said to have to declined instead of improving since the conclusion of the last IMF programme in September 2016.

Consequently, increased losses and low recoveries in the power sector have caused the circular debt to surpass Rs1.2 trillion and creating supply side hindrances.

However, the authorities informed the IMF delegation that gas and power tariffs had been raised to bring down energy sector losses and a campaign planned for retrieval of outstanding bills and decrease in reduction.

But the IMF delegation said it believed the challenge couldn’t be tackled without undertaking structural reforms.

According to informed sources, the authorities apprised the IMF delegation regarding the subsidies forecast in the FY19 budget and those pledged by the PTI government since it took power in August.

Moreover, they were told all fresh subsidies were aimed and based on its vision to assist export sector and shield the marginal groups.

And Finance Minister is provisionally set to be part of the policy level discussions on Tuesday which would continue till the end of this week.

During this time, the IMF delegation will hold independent meetings with the ministers and secretaries of the ministries of commerce, power, petroleum, privatisation, chairman FBR and governor of the central bank.

Then both the sides would break the negotiations for the weekend to draft their respective positions and perspective on the bailout package.

And then would be accompanied by a two-day critical dialogue on finalizing terms and conditions of the new IMF bailout, including size, time period and disbursement mechanism on November 19th & 20th.