After resolving the circular debt, expediting power sector reforms and restructuring state-owned entities, the government is hopeful of getting a “certificate of health” for its macroeconomic framework from the International Monetary Fund (IMF) at the upcoming talks under the consultations in Dubai from November 9 to November 17. An official source said the government had nearly implemented all its commitments to the IMF on reforms and hopefully the fund would issue a letter of assessment to the international financial institutions and other donors, who could then provide financial assistance to the country.
The economic team would be leaving for Dubai after Eidul Adha, as technical talks with IMF will be held on November 9 to 13 while the policy level talks would be held from November 14 to 17. The government has already said it would not be seeking a new programme from IMF and the focus would be to get a certificate of health on the macroeconomic framework to keep getting project financing from the donors.
WORLD BANK, ADB: Pakistan is expected to start getting external inflows that will further improve the country’s financial position, even though it would have to begin returning $1.2 billion to the IMF from February next year. The World Bank and Asian Development Bank (ADB) are likely to provide $1 billion each for the power sector after the report, the source said.
Under Article Four, the IMF holds a review of the economy of every member country once a year and then gives its report. The review for Pakistan has not taken place for the last two years, as it was under an IMF programme and its performance was regularly monitored by the fund staff. After the suspension of the IMF programme in May 2010, external inflows from donors dried up but an increase in remittances and exports helped Pakistan stay afloat. One of the major concerns of the IMF was to bring the Rs 391 billion circular debt in the budget books, which was parked outside the budget to retain the fiscal deficit on the lower side. The IMF was concerned that the anomaly was affecting the health of the banking sector and the budgetary figures were not authentic, the source said.
The government on Friday resolved the issue by swapping the Rs 391 billion circular debt TFCs into PIBs and T-Bills of the power sector and commodity financing operations on budget books. The move will increase the budget deficit by 1.8 percent of the Gross Domestic Product (GDP) against the estimated budget deficit of 4 percent of GDP for the current fiscal year. This measure ended the anomaly and will end the financial crisis in the banking sector, which would in turn enable it to provide investment for power and other projects.
Finance Minister Dr Abdul Hafeez Shaikh had said Pakistan would be retaining its relationship with the IMF, even though there was no need for a new programme during the current fiscal year, but if there was a need then the fund would be approached. He also said the revenue and power sector reforms would be pursued as under an IMF programme. The withdrawal of tax exemptions in March this year and improvement in revenue collection, reducing expenditures and not doling out any financial assistance to the state-owned Pakistan International Airlines and Pakistan Railways, who had been asked to firm up their restructuring plans to get financing from banks, would help get a better assessment from the IMF.
The government is negotiating with the ADB to get financial assistance to retire the circular debt as even after resolving the previous circular debt, another Rs 300 billion had piled up last year because of the tariff differential subsidy and line losses during the last fiscal year.
The ADB is conducting a study to find a permanent solution. The government plans to induct new professional management in distribution and generation companies during the current month to end losses caused by inefficiency. The government also plans to increase the power tariff by 14 percent during the current fiscal year to avoid piling up another Rs 67 billion in liabilities because of the differential between the notified and applied power tariff.
