Tough budget a stepping stone for IMF programme

KARACHI (Reuters): Pakistan is looking to clinch a staff-level agreement on an International Monetary Fund (IMF) bailout of more than $6 billion this month after addressing all of the lender’s requirements in its annual budget, its junior finance minister told Reuters.

The South Asian country has set challenging revenue targets in its annual budget to help it win approval from the IMF for a loan to stave off another economic meltdown, even as domestic anger rises at new taxation measures. “We hope to culminate this (IMF) process in the next three to four weeks,” Minister of State for Finance, Revenue and Power Ali Pervaiz Malik said on Wednesday, with the aim of thrashing out a staff-level agreement before the IMF board recess.

“I think it will be north of $6 billion,” he said of the size of the package, though he added at this point the IMF’s validation was primary focus. The IMF did not respond immediately to a request for comment. Pakistan has set a tax revenue target of 13 trillion rupees ($47bn) for the fiscal year that began on July 1, a near-40pc jump from the prior year, and a sharp drop in its fiscal deficit to 5.9pc of gross domestic product from 7.4pc the previous year.

Malik said the point of pushing out a tough and unpopular budget was to use it a stepping stone for an IMF programme, adding the lender was satisfied with the revenue measures taken, based on their talks. “There are no major issues left to address, now that all major prior actions have been met, the budget being one of them,” Malik said.

While the budget may win approval from the IMF, it could fuel public anger, according to analysts. “Obviously they (budget reforms) are burdensome for the local economy but the IMF programme is all about stabilisation,” Malik said. Sakib Sherani, an economist who heads private firm Macro Economic Insights, said a quick deal with the IMF was needed to avoid pressure on Pakistan’s foreign exchange reserves and the currency given the country’s maturing debt repayments and the effects of unwinding of capital and import controls that were applied earlier.

“If it takes longer, then the central bank may be forced to temporarily re-instate import and capital controls,” he said. “There will be a period of uncertainty, and one casualty is likely to be the rally in equities.” Pakistan’s benchmark share index rose 1 per cent during trading on Wednesday, reaching a record intraday high of 80,348 points at 0640 GMT. The index has rallied roughly 10pc since the budget was presented on June 12, helped by continued optimism on getting an IMF bailout package to bolster the struggling economy.