Fiscal consolidation, the next step for moving ahead with IMF |MG opinion

December 27, 2018 (MLN): In order to move ahead with the IMF programme, Pakistan’s next step would be to focus on fiscal consolidation to curtail fiscal deficit.

According to recent developments, the agreement between IMF and Pakistan is expected to be delayed as the discussions with the IMF team didn’t go well in virtue of the macroeconomic adjustments demanded by IMF which were deemed too steep to be implemented.

Meanwhile, the bilateral flows from Saudi Arabia as well as commitment from UAE to deposit $3 billion in coming days has provided Pakistan some breathing space.

But with the current account deficit amounting to more than $1 billion per month, these bilateral flows will only provide much needed short term relief.

Based on the aforementioned fact, Pakistan’s entry into new IMF programme becomes necessary no matter what government hoped, and these inflows in the meantime are likely to bring some flexibility in the fund’s position.

Moreover, if the government wants to go ahead with the IMF program, it will have to ensure primary surplus on budget deficit and cut down its current and development expenditure as the budget deficit has to be curtailed within a range of 4 to 5 percent of GDP during the programme period.

If the stance of IMF team on the extent of adjustment of different contentious proposed measures softens, some initial steps to curtail budget deficit for FY19 under new IMF program may include:

•             Increasing taxation to contain the fiscal deficit by increasing GST.

•             Levying greater taxes on petroleum and imposition of more customs and regulatory duties.

•             Reducing subsidies for the power sector.

•             Cutting down of development expenditures to control fiscal deficit.

•             Privatization of state owned entities.

Copyright Mettis link News