IMF nostrum

The Pak Banker - - 4EDITORIAL -

WHAT was an­tic­i­pated has come to pass. Since the govern­ment has not been able to keep fis­cal deficit within lim­its, IMF wants Pak­istan to cut its over­all de­vel­op­ment bud­get by 27 per cent to make up for rev­enue short­fall dur­ing the cur­rent fis­cal year. As part of the IMF pro­gramme, the govern­ment has set a limit on the coun­try's over­all fis­cal deficit at 4.3pc of GDP, in­clud­ing 0.3pc ex­penses for mil­i­tary op­er­a­tions against ter­ror­ists in the tribal re­gion and re­set­tle­ment of tem­po­rary dis­placed per­sons. Fur­ther, to fa­cil­i­tate com­ple­tion of ninth quar­terly re­view and se­cure dis­burse­ment of $500m tranche in De­cem­ber 2015, the govern­ment had con­firmed to the IMF that it had missed bud­get deficit tar­get in the first quar­ter of 2015-16 but promised to "re­main com­mit­ted to sus­tained fis­cal con­sol­i­da­tion". In or­der to bol­ster macroe­co­nomic sta­bil­ity and set the stage for sus­tain­able and in­clu­sive growth, the govern­ment had as­sured the IMF to lower the bud­get deficit to 4.3pc of GDP in the on­go­ing fis­cal year and to 3.5pc by the end of the IMF pro­gramme in 2016-17. This was to be achieved mainly through rev­enue mo­bil­i­sa­tion and ex­pen­di­ture ra­tio­nal­iza­tion.

The strat­egy was aimed at cre­at­ing fis­cal space for in­creased spend­ing on in­fra­struc­ture, education, health­care, and tar­geted so­cial as­sis­tance to pro­tect the most vul­ner­a­ble seg­ments of so­ci­ety. To­wards that end, the govern­ment had also re­ported to the IMF that pro­vin­cial gov­ern­ments had given in writ­ing to con­tain their ex­pen­di­tures and strive to achieve their con­tri­bu­tion to fis­cal con­sol­i­da­tion. To this end, pro­vin­cial fi­nance sec­re­taries agreed in writ­ing to in­crease bud­get sur­pluses con­sis­tent with the pro­gramme. The fi­nance min­istry com­mit­ted to in­ten­si­fy­ing in­ter­ac­tion with pro­vin­cial au­thor­i­ties at a higher level to ar­rive at a mech­a­nism to strengthen the provinces' fis­cal com­mit­ment for 2015-16.

Among other things, It was de­cided to hold quar­terly meet­ings among the fed­eral and pro­vin­cial fi­nance sec­re­taries to re­view fis­cal per­for­mance and co­or­di­nate spend­ing pri­or­i­ties to cor­rect any slip­pages in a timely man­ner. More­over, the govern­ment planned to pre­pare con­tin­gency mea­sures as needed and re­duce ex­pen­di­ture al­lo­ca­tions in the first nine months of the year com­pared to the bud­get to avoid any de­vi­a­tion from the IMF pro­gramme tar­get. The govern­ment also promised that ad­di­tional bud­getary spend­ing as re­sult of the re­clas­si­fi­ca­tion of some non-plan loans (0.1pc of GDP) will be made through re-al­lo­ca­tion of ex­ist­ing cap­i­tal ex­pen­di­ture plans. The govern­ment fur­ther com­mit­ted to con­tinue work­ing to­wards re­duc­ing en­ergy sub­si­dies to 0.4pc of GDP in 2015-16, from 0.8pc in 2014-15. To pro­tect against a po­ten­tial neg­a­tive out­come of le­gal chal­lenges to elec­tric­ity sur­charges, the govern­ment was to take mit­i­gat­ing mea­sures as nec­es­sary.

How­ever, things did not turn out as planned. There were slip­pages all across the board as a re­sult of which rev­enue fell short of the tar­get and fis­cal deficit could not be con­tained. To meet the sit­u­a­tion, the IMF now wants the govern­ment to cur­tail de­vel­op­ment ex­pen­di­ture. Specif­i­cally, it ex­pects the govern­ment to limit the de­vel­op­ment pro­gramme by 26.56pc or at Rs1.111 tril­lion against Rs1.513tr ap­proved by par­lia­ment and four pro­vin­cial as­sem­blies in June 2015. For achiev­ing this tar­get, the Fund has es­ti­mated that the fed­eral govern­ment will need to limit Pub­lic Sec­tor De­vel­op­ment Pro­gramme (PSDP) ex­pen­di­ture at Rs611bn, down 13pc, against Rs700bn as orig­i­nally planned. On the other hand, the cu­mu­la­tive an­nual de­vel­op­ment plans of the four provinces would be re­duced to Rs500bn, down 38.5pc against Rs813bn an­nounced by the four pro­vin­cial as­sem­blies. A per­ti­nent ques­tion in this re­gard is: why does IMF want to cut de­vel­op­ment ex­pen­di­ture, and not non-de­vel­op­ment ex­penses? There are many un­nec­es­sary ad­min­is­tra­tive ex­penses and a lot of waste and leak­age which can be elim­i­nated. This anti-de­vel­op­ment ap­proach of IMF has made it un­pop­u­lar in many coun­tries.

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