The International Monetary Fund has urged Pakistan to reform its currency market and make public its budget blueprint.
International Monetary Fund
The International Monetary Fund has urged Pakistan to reform its currency market and make public its budget blueprint.According to the head of the mission, “while we do not comment on domestic politics, we do take note of recent political developments.”In order to obtain an agreement at the staff level, the International Monetary Fund (IMF) has requested that Pakistan do away with its dual exchange rate system and propose a revised budgetary framework for the current fiscal year and the next budget (2023-24).
GDP
The International Monetary Fund (IMF) is concerned that, if current trends continue, the budget deficit may grow to an unprecedented 8-9 percent of GDP due to low revenues and unrestrained expenditures. As a result, the government must release a new budget plan covering the current and subsequent fiscal years.The next budget (2023-24) must include changes to the macroeconomic and fiscal framework to satisfy the International Monetary Fund. These updated numbers might be released as early as tonight (Tuesday) or as late as today (Wednesday).While accompanied by Minister of State for Finance Aisha Ghaus Pasha and Special Assistant to the PM on Finance Tariq Bajwa, Prime Minister Shehbaz Sharif spoke with the IMF’s managing director over the phone last week at the PM House.
communication
The communication impasse between the two parties was finally broken during this lengthy call.The next step was for the Ministry of Finance to coordinate the budget with the International Monetary Fund. As the disparity between the inter-bank and free markets has grown in recent days, the managing director of the IMF has called attention to the problem of a dual exchange rate. The IMF plan forbids using two different exchange rates.The forthcoming budget could face opposition from the IMF due to the disbursement of subsidies and grants of Rs1.7 to Rs1.8 trillion. The finance ministry has recommended allocating Rs970 billion to the power sector in the 2019 budget, allotting for power subsidies alone.
Extended Fund Facility
The administration has started talking about the primary deficit, which will be kept low or converted into a surplus, in light of the low tax receipts and inflexible expenditures.According to our sources, the lack of external financing continues to be a significant barrier to a SLA being reached. Since November 3, 2022, no agreement has been achieved about the pending Ninth Review under the $6.5 billion Extended Fund Facility (EFF).Following talks from January 31 to February 9, 2023 in Islamabad, the initial estimate for the external finance gap was $8 billion till the end of June.
CAD
Despite the IMF’s recommendation to reduce the CAD through import reduction, Islamabad argued that the deficit would be significantly smaller. However, thanks in large part to a decrease in the import bill, the government was able to turn the CAD surplus. Unfortunately, this import restriction strategy slowed GDP growth, which, according to preliminary data, dropped to 0.29 percent in the previous fiscal year 2022-23 from a revised 6.1 percent in the previous fiscal year 2021-22.
programme aims
The reinstatement of normal foreign exchange market functioning, the approval of an FY24 budget in line with programme aims, and enough financing were mentioned by IMF Mission Chief Nathan Porter as three of the most important preconditions for restarting the delayed IMF programme.He stressed the importance of Pakistan’s ability to preserve macroeconomic stability through the maintenance of solid policies and the acquisition of sufficient financing from partners. The International Monetary Fund’s staff is still in talks with the Pakistani government in an effort to set up a board meeting before the current programme ends at the end of June.
Ishaq Dar
On Tuesday, the head of the IMF mission told The News, “they acknowledge recent political developments and hope that a peaceful way forward is found in accordance with the Constitution and the rule of law.”Finance Minister Ishaq Dar, meantime, claims the government has complied with all of the IMF’s previous terms except from its need for foreign financing. He addressed business groups from Lahore and Faisalabad and discussed budget ideas for 2023–24, stressing the need to reduce imports or risk depleting foreign exchange reserves. Despite widespread expectations to the contrary, Pakistan has not yet defaulted on its debts. He said that he has faith that God will protect Pakistan and that everyone should do their best.
Pakistan’s nuclear
After Pakistan’s nuclear tests in 1998, for example, the IMF plan was temporarily suspended before being reinstated, as the minister recalled. He admitted that the economy was experiencing difficulties but promised that the government would do everything in its power to help the business community succeed.Dar acknowledged the delegations’ contributions to the proposed budget and emphasised the government’s resolve to address the obstacles facing the commercial sector and promote economic expansion.
