IMF team to arrive in Pakistan next week with mini-budget talks on cards

• SOS mission's visit not related to EFF's first review, say top sources.
• Their arrival follows major "deviations" from performance targets.
• Nathan Porter-led IMF team to remain in Pakistan from Nov 11 to 15.
  

ISLAMABAD: The International Monetary Fund (IMF) has decided to send its SOS mission to Islamabad next week to hold talks with Pakistan in the aftermath of major "deviations" on performance targets and urge Islamabad to introduce a mini-budget for course correction, The News reported on Thursday.

"IMF staff will travel to Pakistan between November 11 and 15 for a staff visit to discuss the recent developments and program performance to date. This mission is not a part of the first review under the EFF, which will be no earlier than the first quarter of 2025," say top sources.

The publication broke this story last Sunday and indicated that the Washington-based lender might dispatch its mission to Pakistan in the coming weeks after substantial changes in the fiscal numbers surfaced.

This decision of the Fund's abrupt visit has been triggered primarily because the Pakistani authorities failed to convince it about their intention of course correction through virtual meetings in recent days.

However, sources close to the IMF confirmed that it would not be a review mission because the IMF could not wait till February-March 2025 when the course correction through budgetary measures might not be possible — therefore this is an SOS mission.

The fiscal performance showed amazing results in the first quarter (July-September) mainly because of non-tax revenue profit from the State Bank of Pakistan (SBP), as this standalone factor turned a deficit into a surplus after 20 years in any quarter of the fiscal year.

Meanwhile, on the other hand, the Federal Bureau of Revenue (FBR) has undertaken internal reviews and found that there might be a tax shortfall of Rs321 billion in the first half (July-December).

In the first four months, the FBR already faced a shortfall of Rs189 billion.

The macroeconomic framework witnessed major slippages as the Large-Scale Manufacturing (LSM) growth stood at 1.3% against the 3% target. The CPI- based inflation dropped significantly and imports showed declining trends.

There is still an option for the economic managers to further squeeze the development budget in the shape of the Public Sector Development Program (PSDP).

In the first quarter (July-September), the utilization was just standing at a meagre amount of Rs22 billion despite a revised allocation of Rs1,100 billion for the whole financial year 2024-25.

When contacted, Dr Khaqan Najeeb, former adviser, Ministry of Finance, said the 37-month EFF was perhaps the toughest ever to have been agreed by the Pakistan authorities and different from the previous programs as it ropes in the provinces.

The IMF has felt the need to do a mid-first review with the aim to evaluate Pakistan's performance against specific targets set in the bailout agreement.

The focus will, of course, be on the indicative targets, quantitative performance criteria, continued performance criteria and structural benchmarks, focusing on results from the July-September quarter and ongoing performance through December 2024.

The lapses in meeting targets in the fiscal management may need a reassessment of targets or the need for additional measures if fiscal year 2025 (FY25) targets are to be met. A review in the fifth month of FY25 is to ensure that there is enough time for any new measures.

Dr Najeeb felt this proactive engagement reflects the IMF’s commitment to monitoring progress closely, particularly in light of any concerns regarding the implementation of agreed-upon reforms.

One would have hoped that virtual meetings could have resolved concerns but maybe a face-to-face meeting helps foster a more comprehensive dialogue on the dynamic nature of economic indicators and policy actions in governance, social, monetary and energy sectors, state-owned enterprises and investment policy. Surely, the agreed Pakistan International Airlines (PIA) privatisation in August would come under discussion.