IMF team due on 11th for talks on programme performance

ISLAMABAD: In the aftermath of major ‘deviations’ on performance targets, the IMF has decided to send its SOS mission to Islamabad next week to hold parleys and press for course correction by unveiling a mini budget.

The IMF staff will visit Islamabad from November 11 to 15. The upcoming IMF staff visit, led by Nathan Porter, might discuss the possibility of a mini budget in the aftermath of adjustments that occurred on the macroeconomic and fiscal framework agreed with the IMF under the $7 billion Extended Fund Facility (EFF).

The News broke this story last Sunday and indicated that the IMF might dispatch its mission to Pakistan in the coming weeks after substantial changes in the fiscal numbers surfaced.

The top sources said, “IMF staff, led by Nathan Porter, 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.”

This decision of the IMF’s abrupt visit was triggered mainly because the Pakistani authorities failed to convince the Fund 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 Feb-March 2025 when the course correction through budgetary measures might not be possible. So, this is an SOS mission.

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

On the other hand, the FBR has undertaken internal reviews and found that there might be a tax shortfall of Rs321 billion in the first half (July-Dec). 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 percent against the 3 percent target. The CPI based inflation dropped significantly and imports showed declining trends.

There is still an option before 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 meager 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 Extended Fund Facility 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, continue 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 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 Khaqan 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 may be 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 sector, state-owned enterprises and investment policy. Surely, the agreed PIA privatization in August would come under discussion.

It is critical for Pakistani authorities to do their homework with good professional input to ensure smooth continuation of the engagement with IMF, he concluded.