IMF Accelerates Review of Pakistan’s $7 Billion Bailout Package

November 6, 2024 Mahi Bukhari

Introduction

ISLAMABAD: The International Monetary Fund (IMF) has decided to send a mission to Pakistan next week, four months ahead of its scheduled review, to evaluate Pakistan’s performance on its $7 billion bailout package. This decision comes after observing mixed performance in implementing the agreed-upon conditions.

Importance of the Early Review

The IMF Mission’s early arrival highlights the significance of the programme for both the IMF management and its board members. It also provides an opportunity to reassess targets that, according to Pakistani authorities, may have already become outdated one month after the loan’s approval.

The Mission’s Composition and Objectives

Leadership and Scope

Diplomatic and government sources have revealed that Nathan Porter, the IMF Pakistan Mission Chief, will lead the delegation. This team will review the implementation of approximately 40 conditions that were agreed upon in exchange for the bailout.

Official Responses

Qumar Abbasi, the spokesperson for the finance ministry, has not responded to requests for comment. Officials clarified that the IMF’s visit is solely to review Pakistan’s performance during the July-September quarter.

Background of IMF Reviews

Transition from Quarterly to Biannual Reviews

While past IMF reviews were conducted quarterly, the new programme stipulates biannual assessments. The IMF’s staff report, released after the $7 billion loan approval, initially set the first review date for March 15, 2025, covering performance and continuous criteria up to end-December 2024.

Accelerated Timeline

However, this mission will arrive just a month and a half after the loan approval and four months ahead of the planned review. It aims to examine the results of the July-September targets and the progress of the second quarter through October-December 2024.

Responses from IMF Representatives

Outgoing IMF Resident Representative Esther Perez did not respond to requests for comments on the mission’s objectives, given the next review was expected in early 2025.

Internal Government Views on Programme Targets

Divergent Opinions

Within the government, there are differing opinions on whether to adjust programme targets or adhere to the original goals despite some early setbacks. One group advocates for resetting certain targets, particularly on revenue, while another group argues that the IMF’s stance during the loan approval leaves little room for renegotiation.

Potential Government Actions

If Pakistan sticks to the original targets, sources indicate the government may have to introduce a mini-budget to address first-quarter shortfalls and anticipated second-quarter gaps. Alternatively, savings from lower debt servicing costs due to recent interest rate cuts could offset tax targets.

Specialist Involvement in the IMF Mission

The IMF Mission typically includes specialists in monetary and exchange rate policy, financial markets, digitalisation, sovereign debt, climate financing, and fiscal affairs.

Pakistan’s First-Quarter Performance

Monetary Targets and Budget Surplus

Pakistan’s first-quarter results for the fiscal year were mixed. The State Bank of Pakistan (SBP) met its monetary targets, and the finance ministry exceeded its quarterly budget surplus target.

Revenue Collection and Provincial Cash Surplus

However, the Federal Board of Revenue (FBR) missed its revenue collection target, and provincial governments failed to achieve their collective cash surplus goal due to overspending by Punjab. The finance ministry’s report indicated a shortfall of Rs182 billion, or 53%, in the provincial cash surplus target of Rs342 billion.

Challenges in Meeting Revenue Targets

Tax Collection Shortfalls

Official figures show an overall tax collection shortfall of Rs190 billion over four months, with the FBR collecting Rs3.440 trillion against a target of Rs3.632 trillion, despite record-high taxes imposed this year.

Media Alerts and Revenue Assumptions

Government officials have alerted the media to the anticipated revenue shortfall, attributing it to discrepancies between target assumptions and actual results for the quarter.

Provincial Legislative Delays

Provincial governments missed the end-October deadline to legislate an increase in agriculture tax rates to 45%, amid serious challenges from limited cooperation between federal and provincial governments in fully enforcing IMF conditions.

Compliance with IMF Targets

Achievements in Primary Budget Surplus

According to a Ministry of Finance report, Pakistan met IMF targets for the primary budget surplus and net revenue collection by the provinces. The federal government achieved a primary surplus of Rs198 billion, with total surpluses reaching Rs3 trillion, or 2.4% of Gross Domestic Product (GDP). This higher surplus was largely due to booking the annual profit of the central bank in the first quarter.

Conclusion

The early review of Pakistan’s performance on the $7 billion bailout package by the IMF underscores the critical importance of this programme for both Pakistan and the IMF. The mission’s findings will determine the future direction of economic policies and potential adjustments to the agreed-upon targets.

FAQs

What is the purpose of the IMF mission to Pakistan?

The IMF mission aims to evaluate Pakistan’s performance on the $7 billion bailout package, focusing on the implementation of agreed-upon conditions and targets.

Why is the IMF review happening ahead of schedule?

The early review is happening to reassess targets that may have become outdated and to ensure that Pakistan stays on track with the bailout conditions.

What are the main areas of focus for the IMF mission?

The mission will focus on monetary and exchange rate policy, financial markets, digitalisation, sovereign debt, climate financing, and fiscal affairs.

How has Pakistan performed in the first quarter regarding IMF targets?

Pakistan has shown mixed results, with the State Bank of Pakistan meeting its monetary targets, but the Federal Board of Revenue missing its revenue collection target.

What are the potential actions the Pakistani government might take following the IMF review?

The government might introduce a mini-budget to address shortfalls or use savings from lower debt servicing costs to meet tax targets.