IMF asked for “tough budget,” says Miftah Ismail

IMF asked for “tough budget,” says Miftah Ismail

Web Desk
May 29, 2022

IMF asked for “tough budget,” says Miftah Ismail

KARACHI: Finance Minister Miftah Ismail announced on Saturday that the International Monetary Fund (IMF) has asked for a “tough budget” for the upcoming fiscal year, however the federal government is confident that IMF would revive the bailout programme for Pakistan.

In his statements during the ‘National Economy Dialogue – The Way Forward for Pakistan’ held by the Corporate Pakistan Group and Nutshell Conferences, Ismail, who headed the Pakistan delegation in its talks with IMF, said “The government will not be able to achieve this, so we are in negotiations with the Fund,

“However, those are not the big hurdles — the biggest obstacle was the petrol subsidy, which we were able to remove so I think everything else would be easier.”

Fighting a widening current account deficit amid a rise in the import bill, and reducing foreign exchange reserves, the country has been desperately seeking resumption of the delayed $6 billion Extended Fund Facility (EFF).

Authorities have said that its revival is crucial, as a green signal from the IMF paves way for further funding from other creditors.

In the end of its recent talks in Doha, the IMF said that setback of energy subsidies is crucial for programme-revival.

Speaking at the sitting, Ismail expressed confidence that Pakistan would reach an agreement with the IMF in June.

“This will bring stability to the currency and stock markets. The stability in rupee will control inflation as well,” he said.

He also mentioned that the government’s latest measure of rising petroleum product prices would increase inflation, but it was necessary.

In relation to the next budget, the finance minister “guaranteed” that, despite the IMF’s insistence, the government will not raise the personal income tax rate, and that talks with the Federal Board of Revenue (FBR) to reduce the rate are still ongoing.

The minister explained that Pakistan is going through a “tough phase” based on current economic figures.

“The day I became the finance minister, the Finance Division projected a deficit of Rs3,600 billion, which is the highest ever.

“Adding the provincial deficit, it cumulatively adds to Rs5,100 billion, which comprises of Rs3,700-3,800 billion in debt servicing and the remaining Rs1,300 billion as primary deficit. This is in contrast to the agreement made with the IMF during the sixth review, under which the primary deficit was estimated to be around Rs25 billion,” he said.

Pakistan will have to pay roughly $21 billion in debt payments next year, according to Ismail, “which will add up to $31 billion if the $10 billion in current account (CA) deficit is included.”

“Furthermore, if we want to increase our foreign exchange reserves by $5 billion, which currently around $10 billion, our total funding requirement rises to $36-37 billion,” the minister said, adding that the country’s IMF programme must be revived in order to attract the funding.

According to Ismail, the value of Pakistani bonds has fallen to 65 cents, making it impossible to sell them on the open market or issue euro bonds.

“Thus, the only option left is to approach multilateral institutions, but in order to take loans from such institutions, it is important to get the IMF nod,” he said.

Miftah Ismail stated that the government was losing Rs120-140 billion per month due to the IMF’s previous stipulation regarding the withdrawal of petroleum product subsidies.

Ismail had already announced a Rs30 per litre price rise for petroleum goods at a hastily arranged press conference on Thursday.

Prime Minister Shehbaz Sharif unveiled a Rs28 billion relief package on Friday, under which 14 million people earning less than Rs40,000 per month will receive Rs2,000 per family.

“Rs2,000 may not sound much, but it is about 5% of the household income, which is the same an average Pakistani spends on transport,” Ismail said of the assistance package.

According to Miftah Ismail, the country requires a “agricultural revolution” because crop yields are extremely low.

“I think that Pakistan’s first line of defence in terms of economy is agriculture, and we need to improve its productivity,” he added.

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