ISLAMABAD: The International Monetary Fund (IMF) is expected to discuss the deteriorating fiscal position that has been largely affected by debt servicing that consumed the federal government’s net revenue receipts in the first quarter of the current fiscal year, it said. The news on Thursday.
The IMF mission is expected to arrive in Pakistan today and will stay till November 16 for the review ahead of the second tranche under the $3 billion Stand By Agreement (SBA).
Despite stifling the release of funds for development projects and cutting subsidies to the lowest levels, the government is seeking to reduce the fiscal deficit to the desired limits and mainly turn the primary deficit into a surplus for the first quarter of the current fiscal year.
“The IMF can raise the sustainability of such a tight fiscal position at a time when the government released development spending of just Rs 40 billion against the allocation of Rs 950 billion and limited subsidies to Rs 2.5 billion against the fiscal allocation of over Rs 1,002 billion . “, sources said The news.
However, finance ministry officials believe a downward revision of interest rates is on the cards and plan to finance the fiscal deficit preferably over longer periods rather than relying on shorter periods of interest-bearing bills and domestic bonds.
“The average time to maturity will be extended as much as possible in order to reduce the debt servicing bill in the remaining period of the current financial year,” the official said. The official claimed that the debt service bill will be contained within the range of Rs 7.3 to 7.5 trillion for the current financial year.
Debt servicing consumed Rs 1.4 trillion in the first quarter of the current financial year with the policy rate at 22%. The State Bank of Pakistan (SBP) on Wednesday raised Rs 1.148 billion against a target of Rs 975 billion, Rs 173 billion higher than the target.
The 12-month yield was down 40 basis points. The 3-month return stands at 21.94%, the 6-month at 21.98% and the 12-month at 21.99%. So, overall, the market is pointing to a slight reduction in interest rates.
But the question is how the government will deliver on its rising revenue and expenditure requirements in the remaining months of the current financial year.
Contacted Dr Khaqan Najeeb, a former adviser to the Ministry of Finance, said that an IMF program is managed through past actions, structural benchmarks, indicative targets and performance criteria.
“It is safe to assume that the first quarter targets agreed with the IMF in fiscal, energy, monetary and external areas are likely to be largely achieved. The fiscal shows a lower deficit at 0.9% compared to last year and a primary surplus of 0.4%. Figures to meet income support expenditure of Rs 87.5 billion are also likely to be met. SBP is yet to release details of SBP’s net international reserves, net domestic assets and net foreign exchange reserve. But they assure us that the numbers look comfortable. There is probably no fresh government borrowing from SBP and the amount of government guarantees is also within the agreed limits. Hopefully the energy benchmarks are also within agreed limits,” said Dr Najeeb.
Dr Najeeb said it is also the quality of Pakistan’s adjustments to meet the first quarter targets that will be reviewed by the IMF.
“This review will affect the determination of how the FY24 numbers will be met. There will likely be dialogue on the external side where debt flows and exports are slower than expected. There is likely to be a discussion by the IMF on the risks to the FBR collection target of Rs 9,400 billion, which now requires a high growth of 33% over last year, along with expediting refunds,” the former adviser said.
Increased debt servicing expenditure requirements of over Rs 1,000 billion compared to the budgeted amount of Rs 7,300 billion along with a potential deficit of excessive provincial surplus of Rs 600 billion will come under IMF scrutiny. This will set the tone for the updated Economic and Fiscal Policy Memorandum, he concluded.
Originally published on The news
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