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Govt on fiscal tightrope as IMF talks set to begin today

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ISLAMABAD: The International Monetary Fund (IMF) is expected to discuss the deteriorating fiscal position which has been heavily affected by debt servicing which consumed the net revenue receipts of the federal government in the first quarter of the current financial year, reported The News on Thursday.

The IMF mission is expected to arrive in Pakistan today and remain till November 16 for the review ahead of the second tranche under the $3 billion Stand By Agreement (SBA).

Despite choking the release of funds for development projects and curtailing subsidies to the lowest levels, the government has been thumping on restricting budget deficit within the desired limits and especially converting the primary deficit into surplus for the first quarter of the current fiscal year.

“The IMF might raise the sustainability of such a tight fiscal position at a time when the government released development spending of just Rs40 billion against the allocation of Rs950 billion and restricted subsidies at Rs2.5 billion against the budgetary allocation of over Rs1,002 billion,” sources told The News.

However, the finance ministry officials believe that a downward revision of the policy rates is on the cards, and they have been planning for financing a budget deficit on preferably longer periods instead of relying upon shorter periods of treasury bills and domestic bonds.

“The average time to maturity will be stretched as much possible in order to reduce the over debt servicing bill in the remaining period of the current fiscal year,” said the official. The official claimed that the debt servicing bill would be curtailed within the allocated limit of Rs7.3 to Rs7.5 trillion for the current fiscal year.

Debt servicing consumed Rs1.4 trillion in the first quarter of the current fiscal year with the policy rate at 22%. The State Bank of Pakistan (SBP) on Wednesday raised Rs1,148 billion against the target of Rs975 billion, Rs173 billion higher than the target.

The 12-month yield declined by 40 basis points. The 3-month yield stands at 21.94%, 6 months at 21.98%, and 12 months at 21.99%. So overall, the market is indicating a slight reduction in the policy rates.

But the question is how would the government materialise its increasing revenue and expenditure requirements in the remaining months of the current fiscal year.

When contacted, Dr Khaqan Najeeb, former adviser to the Ministry of Finance, said an IMF programme is managed through prior actions, structural benchmarks, indicative targets, and performance criteria.

“It is safe to presume that first-quarter targets agreed with the IMF on fiscal, energy, monetary, and external are likely to be largely met. The fiscal shows a lower deficit at 0.9% vs last year and a primary surplus of 0.4%. The figures for meeting spending on income support of Rs87.5 billion are also likely to have been met. The SBP is yet to publish details of net international reserves, net domestic assets and SBP’s stock of net foreign currency swaps. But we are being assured that numbers are looking comfortable. There is probably no new borrowing by the government from SBP and the amount of government guarantees is also within the agreed limits. Hopefully, energy benchmarks are also within agreed limits,” said Dr Najeeb.

Dr Najeeb said it is also the quality of adjustments by Pakistan in reaching the first quarter targets that would be reviewed by the IMF.

“This review will affect the determination of how FY24 numbers will be met. There will likely be a dialogue on the external side where debt flows and exports are slower than anticipated. There is likely to be a discussion by the IMF of risks to the FBR collection target of Rs9,400 billion, which now requires a high growth of 33% over last year, along with expediting refund allocations,” said the former advisor.

Increased spending requirements on debt servicing of more than Rs1,000 billion compared to the budgeted amount of Rs7,300 billion along with a likely shortfall of exaggerated Rs600 billion provincial surplus will come under scrutiny by the IMF. This will set the tone for the updated Memorandum of Economic and Financial Policies, he concluded.

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It is anticipated that 150 ships would arrive at Gwadar by the year 2045, allowing the port to handle fifty percent of all imports.

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In an effort to strengthen the port’s economic importance, the Federal Government has made the decision to direct fifty percent of all imports from the public sector to Gwadar Port.

By taking this action, which has the backing of the Special Investment Facilitation Council, the port’s financial situation is going to be improved.

The Cabinet will be presented with a summary of imports through Gwadar by the Ministry of Maritime Affairs, which will take place after Prime Minister Shehbaz Sharif’s recent trip to China.

When the next Cabinet Meeting takes place, Ahsan Iqbal, the Federal Minister for Planning, Development, and Special Initiatives, will examine the Chinese offer for the Karachi to Hyderabad Section of the ML-1 Project and bring it to the Cabinet.

Company preparations for the Shanghai International Import Expo, which will take place in November 2024, are being made by the Board of Investment and the Ministry of Commerce of Pakistan.

One of the most important aspects of the China-Pakistan Economic Corridor is the Gwadar port, which serves as a significant commerce route connecting China, the Middle East, Africa, and Europe. At this time, the Gwadar Port is able to accommodate two huge ships, and by the year 2045, it is anticipated that it would be able to handle up to 150 ships.

By developing the Gwadar Port, regional connectivity would be improved, employment will be created, and international investment will be attracted.

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The price of gold in Pakistan has experienced a significant surge.

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Gold prices in Pakistan surged significantly on Thursday following two consecutive days of decline, with the price per tola rising by Rs2,000 to reach Rs262,100. This increase was in accordance with the downward trend in international market values.

The All-Pakistan Gems and Jewellers Sarafa Association (APGJSA) reported that the price of 10 grams of 24-karat gold rose by Rs1,714, reaching Rs224,708.

Conversely, the world gold market experienced an upward trajectory. According to the APGJSA, the global price of gold surged to $2,503 per ounce following a $22 gain during the trading session.

The local market experienced a significant decline in silver prices, decreasing from Rs50 to Rs2,900 per tola after a prolonged period.

The local market’s gold prices remain subject to the ever-changing dynamics of the international market, as well as domestic considerations such as currency exchange rates and domestic demand.

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The government has not met the deadline set by the International Monetary Fund (IMF) for the approval of a $7 billion loan.

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4 days ago

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On Tuesday night, there were virtual talks between representatives of the Finance Ministry and the IMF delegation, with the main topics being external finance and income generation.

According to people familiar with the situation, no date has been set for the IMF’s Executive Board to approve the loan despite the ongoing negotiations.

Officials from the Finance Ministry informed the IMF mission about the government’s initiatives to get outside funding during the discussions. Updates on loan rollovers and fresh finance commitments from allies were included in this. According to sources, the IMF has received a schedule, and loan rollovers are expected to be finished by the end of next week.

The $12 billion in debt must be rolled over before the loan can be approved by the Executive Board, according to the IMF mission.

In the virtual discussions, representatives of the Federal Board of Revenue (FBR) conversed with the IMF team over the revenue deficit. The FBR must reach its revenue goals for this month, according to the IMF mission. As a result, the IMF has asked the FBR to submit a thorough strategy outlining how it will close the gap left by the shortfall and guarantee that revenue goals are reached.

Apart from the conversations on outside funding, there are rumors that the Finance Ministry is actively holding talks with commercial banks in order to obtain new funding. According to reports, negotiations are taking place with four distinct sources for commercial loans, which are anticipated to support the government’s overall financial plan.

Finance Minister Muhammad Aurangzeb disclosed on Tuesday that the IMF was in favor of introducing targeted subsidies. He said that qualifying recipients might receive these subsidies through the Benazir Income Support Programme (BISP).

In order to guarantee consistency, the minister announced that this week’s talks with chief ministers will focus on implementing a similar policy across the country. He was having a casual conversation in parliament with the journalists.

In response to queries about outside funding, Aurangzeb revealed a $2 billion deficit and said that talks to close this gap are progressing. He stressed how crucial it is to obtain business loans.

He went on, “At this point, there’s a need to secure an agreement for commercial loans, not exactly their issuance,” emphasizing that debt rollover negotiations are nearing their conclusion and doing well. The minister expected that these developments would shortly be reported to the governments of allied countries by relevant authorities.

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