ISLAMABAD: The International Monetary Fund (IMF) is currently seeking confirmation from friendly countries including Saudi Arabia, China, United Arab Emirates to secure the inflow of dollars for Pakistan to maintain the overall foreign exchange reserves. can go. A comfortable surface.
Negotiations for the ninth review to secure the $1.1 billion tranche are underway in Islamabad amid rapidly dwindling foreign exchange reserves and default fears.
The IMF has not yet shared a draft Memorandum of Financial and Economic Policies (MEFP) with Pakistani officials, a document that will serve as the basis for a staff-level agreement.
As of Tuesday night, the IMF had not shared the draft MEFP with Pakistani negotiators. However, Finance Ministry officials are still confident that a staff-level agreement with the mission can be finalized by February 9.
If this does not happen, the possibility of extension of the review negotiations cannot be ruled out.
The foreign exchange reserves held by the State Bank of Pakistan (SBP) were a little over $3 billion and are going to decrease on a weekly and monthly basis. Sources said that the total foreign exchange reserves may not exceed 6 billion dollars or may reach a maximum of 8 billion dollars.
It remains to be seen how much data the IMF includes in the draft MEFP document, which is critical to generating much-needed and much-needed dollar inflows at a time when we have nearly $3bn in capital. There will be effects.
“The ongoing talks could be extended if the two sides fail to resolve lingering differences over the overall fiscal framework and power sector subsidies,” sources familiar with the development said, expressing hope. that the IMF mission will share the draft MEFP. , with nine tables, on Wednesday (today) and they will be able to finish the pending ninth review by Thursday (February 9, 2023).
Pakistani officials do not expect further meetings with the IMF before exchanging the MEFP document. Once the MEFP document is shared, the timeframe for taking corrective actions will be finalised.
When asked, a senior official revealed that the provincial fiscal structure and their expenditure is still a major bone of contention as the IMF has estimated that a provincial revenue surplus of Rs 750 billion may not be achieved. The revised estimates therefore needed to be incorporated into the country’s overall fiscal framework.
Budget deficit
In a related development, the finance ministry has raised its estimate for the budget deficit target from 4.9 per cent of gross domestic product (GDP) to 6.5 per cent of GDP for the current fiscal year, mainly due to Due to increase in expenditure due to debt servicing. , less subsidies and projected tax and non-tax revenue targets for the current fiscal year.
Gross debt servicing is likely to increase to Rs 5.2 trillion from Rs 3.9 trillion. Of the 1.6 percent of GDP increase in the fiscal deficit, as it rose from 4.9 percent of GDP to 6.5 percent of GDP, the larger increase in the budget deficit was due to increased debt servicing requirements. happened In the policy rate.
In the context of increased credit provisioning requirements, this widened the budget deficit to at least 1.2% of GDP, leaving a gap of 0.4 to 0.5% of GDP to increase the primary deficit.
Under the IMF programme, the government wanted to reduce the primary deficit to zero, so it had to cut spending and take additional revenue measures to cover the fiscal gap of Rs 400-450 billion.
However, the IMF disagrees with this figure and is asking the government to fill the gap of Rs 500-600 billion through spending cuts and taking additional tax and non-tax revenue.
The Public Sector Development Program (PSDP) may be reduced from Rs 727 billion to Rs 352-400 billion for the current financial year.
It was earlier envisaged to reduce it to Rs 452 billion but now another Rs 100 billion has been cut in an effort to bring the primary deficit to the desired level.
