ISLAMABAD: Highlighting five major risks to $6 billion Fund programme, the IMF’s Resident Chief, Teresa Daban Sanchez, has said that Pakistan’s failure to get out of FATF grey list could have implications on capital inflows jeopardizing foreign financing assurances.
She pointed out five major risks to the ongoing IMF programme including fiscal slippages such as resistance to fiscal measures and debt sustainability, secondly opposition to governance and institutional building by vested interests, thirdly absence of majority by ruling party in Upper House of Parliament and provinces may undeliverable on their surpluscommitment, fourthly large amount of rollover needs for short term debt and fifthly Pakistan’s failure to get out of grey list by the Financial Action Task Force (FATF).
“The IMF could continue dealing with countries into grey or blacklist but it will have impact on capital inflows. The IMF Board of Directors wants Fund to look into matters of money-laundering and terror-financing because it hampered taxation system. The IMF is mainly responsible for ensuring macroeconomic and financial stability, so looking into FATF issues becomes important for us,” the IMF’s Resident Representative in Pakistan, Teresa Daban Sanchez, said while talking to Senior Journalists Forum organised here at the National Press Club (NPC) on Monday.
To a query about CPEC loan repayments in the context of debt sustainability, she said that Pakistan shared all details of CPEC loans as it was largely meant for private sector. The debt sustainability analysis shows that CPEC loans were manageable but overall the country’s debt situation was not sustainable. She emphasised on the need for moving ahead with debt management. She said that Pakistan and the IMF had entered into 18 arrangements since 1958 and only one programme from 2013 to 2016 fully disbursed and was completed successfully.
When asked that the basis of IMF programme was already shattered in the context of escalating budget deficit exceeding eight percent of GDP than envisaged 7.2 percent for last fiscal and inability of the provinces to throw surplus after presenting the current fiscal year’s budget, the IMF chief replied that there were certain challenges that would have to be resolved to make this programme successful. “If there will be no implementation on reform agenda, there will be no programme,” she added.
She said that the inflation might further go up and growth remained slow over the short term but the IMF programme aimed at stabilising the economy after which inflation would start receding and growth would pick up for achieving long and sustainable levels over the medium term.
She said that the IMF did not place any condition to bring changes into resource distribution formula of NFC, however, the Fund programme got commitment of fiscal federalism as the Centre and provinces signed memorandum of understanding (MoU) to throw revenue surplus and harmonisation of taxes to improve revenue collection. She said that there were different ideas discussed in the IMF report for achieving fiscal sustainability.
To another question about curtailment of defence spending, she said that the IMF did not get involved in micro-management but it got commitment from authorities to ensure social spending on vulnerable segments of the society.
The IMF chief said that Pakistan pursued growth based on consumption and without required level of investment to GDP ratio. With this growth model, the growth was unsustainable. She said that the country achieved ballooning fiscal and current account deficit and kept discount rate on lower side while exchange rate remained overvalued. It all resulted in rising budget deficit and current account deficit. The State Bank of Pakistan (SBP) had to inject heavily in the past that resulted in depletion of foreign currency reserves to keep exchange rate at certain levels, she added.
She said that there were three pillars of the ongoing IMF programme for Pakistan including revenue based fiscal consolidation focused on removing exemptions and privileges, greater coordination with provinces and elimination of quasi fiscal circular debt, second a market determined and flexible exchange rate and a strengthened central bank focused on achieving price stability and thirdly strengthening of social safety programmes.
She also identified 10 goals envisaged to be achieved under the IMF programme including achieving debt sustainability, stronger tax collection and a better FBR, independent central bank, market determined exchange rate regime, moderate inflation, sustainable and inclusive growth, power sector efficiency, a new public finance management regime, better management of SOEs and getting out of FATF grey list.