Pakistan’s new budget not enough to win back bailout programme: IMF

Mollifying International Monetary Fund has become an uphill task for the government as the global lender has expressed its concerns over budget asking Pakistan to take more strict measures in terms of tight fiscal discipline if it wants revival of $6 billion loan programme, reported 24NewsHDTVchannel. 

While talking to 24NewsHD TV channel, IMF Pakistan Representative Esther Perez Ruiz said that Pakistan needs to take more strict measures for putting Fund’s loan programme on track. She was of the view that the recently presented budget needs to be tinkered in line with key objectives of its International Monetary Fund programme. 

Pakistan unveiled Rs9.5 trillion budget for 2022-23 on Friday aimed at tight fiscal consolidation in a bid to convince the IMF to restart much-needed bailout payments. 

“Budget must be adjusted to the IMF loan programme. The Fund needs more clarification on the revenue targets proposed in the budget. There is also a need to review the estimations of expenditures in the financial plan,” Ms Ruiz said adding that talks with Pakistan on budget were going on. 

"Discussions with the authorities continue to obtain more clarity on certain revenue and spending items and allow for a full 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 been stalled over the lender's concerns over the status of some of its objectives, including fiscal consolidation.

The next tranche that Pakistan is to receive upon a successful review is $900 million, and a green light from the IMF would also open up other global funding avenues.

Pakistan urgently needs funds in the face of dwindling foreign exchange reserves, which have reached $9.2 billion - enough for less than 45 days of imports.

Bloomberg reported that Pakistan’s plan to trim its deficit by slashing spending may not be enough to convince the IMF to resume its loan programme, according to economists at Citigroup Inc.

The tax-to-GDP ratio is budgeted to rise to 9.2% of gross domestic product in the year starting July 1 from 8.6%, which seems low versus Pakistan’s emerging market peers and its own history, Johanna Chua and Gaurav Garg wrote in a note to clients Monday. Interest payments are estimated to consume about 44% of revenue.

“We await further fund feedback,” Chua and Garg wrote, before meetings due this month between IMF staff and Pakistani officials.

Pakistan is seeking an immediate disbursement of $900 million from the IMF, to help avert a potential default. Surging food and fuel prices have stoked Asia’s second-fastest inflation and debt repayments eroded Pakistan’s foreign-exchange reserves to below $10 billion, or enough to cover less than two months of imports. 

Pakistan needs at least $41 billion in the next 12 months, according to Finance Minister Miftah Ismail, which analysts including Saad Khan from IGI Securities Ltd. anticipate will be met but only barely.

Reporter Waqas Azeem

With inputs from Agencies