PESHAWAR: Resident Representative of the International Monetary Fund in Pakistan Maria Teresa Daban Sanchez claimed that the Pakistani government had taken tough budgetary measures for fiscal year 2019-20 on its own and not at the behest of the IMF for a bailout package.
Ms Sanchez told a meeting at the Sarhad Chamber of Commerce and Industry that that IMF was extending $6 billion Extended Fund Facility program to Pakistan at its request.
She said the government’s reform initiatives were imperative for the country’s sustainable economic growth and development.
Representative backs govt’s reforms
The IMF resident representative said the fund’s holistic bailout package would bring economic stability and prosperity to Pakistan and accelerate economic and trade activities in the country.
SCCI president Faiz Mohammad Faizi told the visitor that if the business community was taken on board about the IMF bailout package before its approval, it would benefit national economy.
He said Pakistan’s economy passed through a critical phase, so foreign lending or financial package like IMF’s was essential to put it back on track.
Mr Faizi expressed the hope that the $6 billion IMF bailout package would bring economic prosperity and development to the country.
He said the growing budget and trade deficits, especially the current account one, were the major cause of the country’s poor economic conditions.
The SCCI president said Khyber Pakhtunkhwa’s trade was mostly related with Afghanistan and Central Asian Republics and the continuous devaluation of Pakistani rupee was badly affecting businesses, trade and exports.
He resented the government’s tough budgetary measures and said the business community’s misery had multiplied.
Mr Faizi suggested the government introduce fixed tax in the country.
He said instead of further taxing taxpayers, the new people would be brought to the tax net.
SCCI senior vice-president Saad Khan Zahid and vice-president Haris Mufti, former FPCCI president Ghazanfar Bilour, All Pakistan Commercial Exporters Association chairman Manzoor Elahi, and executive members Malik Imran Ishaq, Sohail Javed and Pervez Khattak were also present in the meeting.
The International Monetary Fund (IMF) said on Monday that it had full access to borrowing and maturity terms of the China-Pakistan Economic Corridor (CPEC) projects and its loans were manageable.
Addressing Senior Journalists’ Forum at the National Press Club, IMF resident representative in Islamabad Teresa Daban Sanchez counted issues relating to the Financial Action Task Force (FATF), provincial spending behaviours and insufficient parliamentary strength of the government as key risks to its $6 billion 39-month bailout programme.
She said Pakistan had shared full details of CPEC loans with the IMF, adding that CPEC was mostly private sector investment in energy and infrastructure. In reply to a question, the IMF official said energy projects had no doubt helped the country deal with acute shortages of power and this was a very positive aspect. She said the debt sustainability analysis showed that CPEC loans were manageable, but the country’s overall debt situation was not sustainable.
Teresa Sanchez counts FATF, provincial spending behaviours, govt’s insufficient parliamentary strength as key risks to $6bn bailout programme
Responding to a question, Ms Sanchez said fiscal consolidation and revenue mobilisation, market-based exchange rate and social sector protection were three basic pillars of the new IMF programme, adding that fiscal consolidation should be revenue-oriented to deal with the problems of fiscal deficit because the country had a very low tax-to-GDP ratio and needed to increase revenue which was being done through removing tax exemptions and privileges.
The IMF official said there was a strong need for greater coordination with the provinces to ensure that they spent less and provided budget surplus to the federal government. She said the IMF did not place any condition to bring changes in the National Finance Commission’s resource distribution formula, but it did get a commitment of fiscal federalism under a memorandum of understanding signed by the federal and provincial governments on revenue surplus and harmonisation of taxes for improved revenue collection.
Ms Sanchez said one of the most important pillars of the IMF programme was the market-based exchange rate, with the central bank in the background, to achieve price stability through forward looking actions to deal with inflation.
Speaking about key reforms in the programme, she enumerated implementation of financial management to instill fiscal discipline in the public sector, autonomy to the central bank, energy sector improvement, strengthening of anti-corruption agencies and compliance with the FATF.
Talking about key risks to the programme, Ms Sanchez noted the lack of majority of the ruling party in parliament, fiscal slippages, large amount of rollover need for short-term debts and FATF’s grey list that could have implications for capital inflows to Pakistan and jeopardise financing assurances under the IMF programme from the World Bank, Asian Development Bank and key bilateral partners.
She said the first review of the programme would be completed before December this year. Asked if Rs14bn or so shortfall in revenue collection during the first month of the fiscal year would trigger the IMF call for mini-budgets if the trend continued, she said the Fund programmes were not based on the one-month performance.