ISLAMABAD: As a result of ongoing review talks between Pakistani authorities and the IMF, Islamabad will be able to draw third tranche worth $545 million under 36 months Extended Fund Facility (EFF) after approval of Fund’s executive board by early next month.
This smooth sailing possesses many challenges for the government in months ahead as the PML (N) led government will have to deliver promises on many fronts of the economy including pursuing vigorous privatization plan, broadening of tax base, maximizing FBR revenues, rationalizing energy tariff and approving laws to make the State Bank of Pakistan (SBP) an autonomous body in months ahead.
Except net borrowing from the SBP, Pakistan has fulfilled many other conditions under the EFF program which will pave the way for release of third tranche for the country’s struggling economy.
The IMF relaxed Net International Reserves (NIR) related target so the country achieved this performance criteria for end December 2013. It was the SBP target not to allow deletion of reserves more than $2.8 billion till end September 2013 but the central bank missed it out by more than $300 million as the reserves declined to $3.1 billion.
This NIR target was revised upward to the level of $4 billion till December 2013.In order to achieve the NIR target, the government ensured exports proceeds of $500 million coming back into the country in December 2013 that also resulted into achieving current account surplus for this month.
Pakistan implemented structural benchmark criteria related to make central Power Purchase Agency operational by separating it from National Transmission and Dispatch Company (NTDC), hire staff and issue CPPA rules and guidelines and initiate the payment and settlement system till end December 2013.
Another structural benchmark was partially met under which the government had committed with the IMF to initiate revenue based load shedding in six remaining electricity distribution companies.
The government also met structural benchmark to develop and finish launching initiative to enhance revenue administration for sales tax, excise, and customs, similar to that prepared for income tax till end December 2013.
The government also implemented structural benchmark to hire a professional audit firm to conduct a technical and financial audit of the system to identify the stock and flow of payables at all levels of the energy sector till end November 2013.
For the first six months (July-Dec) period, the government has succeeded in curtailing the budget deficit to 2.2 percent of GDP mainly because of achieving jump-start in netting non-tax revenues at supersonic speed and controlling expenditures side.
In the same period of the last financial year, the budget deficit had crossed 2.6 percent of GDP. Instead of continuous much-trumpeted thumping on its performance, the government should also keep in mind that the budget deficit had risen from 2.6 percent of GDP to 8.8 percent of GDP in the second half of the previous fiscal year so it was yet to see how the government control unbridled expenditures and boost dwindling FBR revenues in effective manner in order to avoid slippages in achieving the desired target on fiscal side under the tight scrutiny of the Fund program.
