Govt accepts nine fresh benchmarks set by IMFArchive
ISLAMABAD: With slippages on three major deliverables, the government has committed itself to nine fresh targets with the International Monetary Fund (IMF) as compensation to ensure smooth completion of around $6.64 billion bailout package in August this year.
This could involve additional revenue measures of around Rs100bn by end-February, Rs30bn reduction in expenditures across the government machinery, and speeding up privatisation of public sector entities apart from an unspecified amount of increase in gas rates.
This has been revealed by the IMF in its quarterly report on the completion of ninth review of Extended Fund Facility (EFF) contracted in September 2013 for 36 months.
The IMF said most of end-September 2015 performance criteria (PCs) and indicative targets were met, except slippages for PCs on net domestic assets (NDA) of the State Bank of Pakistan (SBP) and the general government deficit, as was the indicative target on federal tax revenue.
The Fund said the authorities had put in place additional revenue measures to stay on course with respect to the fiscal targets, proposed modification in NDA for end-December performance criteria to ensure adequate reserve money growth. The government had taken corrective measures to meet the revised target, it added.
It said the most structural benchmarks (SBs) for end-September review were met while those regarding the Anti-Money Laundering (AML) Act amendments had been modified. Moreover, the missed end-November SB on multi-year power tariffs has also been replaced by two new SBs to facilitate completion within the timeline of privatisation. In addition, five new SBs in the areas of tax administration, AML, energy sector and business climate reforms have been put in place, it added.
The report said Pakistan’s macroeconomic outlook was favourable but was contingent upon sustained fiscal consolidation and implantation of structural reforms. It said the near-term risks to outlook had slightly tilted to the downside.
It said the external vulnerabilities like protracted period of slower growth in key advanced and emerging economies (China and GCC) could hurt exports and remittances along with continuation of dollar appreciation and limited variation in rupee exchange rate. All these factors could erode Pakistan’s competitiveness. Also, legal challenges to electricity surcharges and challenging political and security conditions would affect economic activity and fiscal consolidation.
Conversely, fast implementation of CPEC projects and improvement in security situation, coupled with removal of international sanctions against Iran could boost investment and growth and improve energy supply.
The government conceded that private sector credit growth continued to decelerate despite lowering of government borrowing from the central bank and promised to take additional measures to attain budget deficit target of 4.6 per cent of GDP. Apart from Rs40bn tax measures introduced in October, the government committed to remove more statutory regulatory orders (SROs) involving revenues of 0.3pc of GDP (around Rs100bn) would be enacted by end-February.
However, the government said the additional tax measures could be delayed until 2016-17 budget if end-December 2015 fiscal deficit was achieved. In addition, the government also committed to reduce recurrent and capital spending by Rs15bn each unless stronger federal revenue performance warranted otherwise.
The government gave an undertaking to the lender that it would better balance devolution and expenditure responsibilities with the provinces, strengthen central bank independence and anti-money laundering framework and improve fiscal responsibility and debt limitation law.
The government also committed to transfer Rs335bn circular debt in the power sector to distribution companies for recovery from consumers as the privatisation programme progressed. It also gave an undertaking in writing that remaining revenue shortfall by gas companies would be recuperated in January 2016.
“We will also make any necessary adjustments to notified prices to reflect imported gas prices, so that the cost of this gas will be fully reflected in the tariff on a monthly basis,” Finance Minister Ishaq Dar wrote.
Published in Dawn, January 13th, 2016