ISLAMABAD: The government borrowed Rs 411 billion from State Bank for budgetary support from July 1 to December 13, although the International Monetary Fund (IMF) had asked it to limit the budgetary borrowing at Rs 258 billion for the full fiscal year.
Sources in Ministry of Finance told Daily Times, IMF Stand-By-Arrangement (SBA) target to limit State Bank of Pakistan financing of the budget at the level of Rs 258 billion till June 2009 has been exceeded by Rs 153 billion.
The government may find it difficult to keep its borrowing from SBP at the level decided by IMF, source said on Saturday.
The government had agreed with the IMF authorities that SBP financing of the budget would be kept at the level of Rs 258 billion.
This is the sad beginning of the IMF programme as the government has failed to achieve the most important target, said an analyst based in Karachi. If government wants to meet the IMF target then by December 31 it has to retire Rs 153 billion to SBP, which appears to be an impossible task.
Meeting the key targets is important, as this would determine countrys future relations with IMF and other multilateral financial institutions. This is also important for the credit rating of the country. Pakistan is expecting few hundred million dollars assistance from a donor country by 31 December 2008. If this assistance is used for financing government expenditure, then the IMF target could be met, otherwise, it would be missed.
The government has an opportunity to reduce this gap between Rs 258 billion to Rs 411 billion to meet performance target by arranging required financing from other options, the sources added.
According to the Letter of Intent (LOI) of the IMF, the targeted reduction in the fiscal deficit in 2008-09 will help eliminate SBP financing of the budget. The government is committed to limiting SBP financing of the budget to zero on a cumulative basis during 1 October 2008 to 30 June 2009. During this period, the fiscal deficit will be fully financed by available external disbursements (which have already been committed), the acceleration of the privatisation process, the issuance of treasury bills, and other domestic financing instruments, including Pakistan Investment Bonds, Ijara Sukuk, and National Savings Scheme (NSS) instruments.
Pakistans privatisation programme is moving ahead at a snail pace with no major achievement during July-December period of current fiscal year. Similarly, due to the strong opposition from workers and opposition parties the privatisation of major entities like OGDCL, PSO, PPL and electricity distribution companies would be difficult in second half of the fiscal year, the sources explained. The government is continuously increasing the profit margins on the investment to be made in National Saving Schemes (NSS), but these schemes would not be instrumental in generation of required non-inflationary financing within stipulated period. Other options like treasury bills, Pakistan Investment Bonds, Ijara Sukuk have not been fully availed.
According to LOI, the fiscal deficit (excluding grants) is targeted to decline to 4.2 percent of GDP (Rs 562 billion) in 2008-09, from 7.4 percent in 2007-08. This fiscal effort is necessary to help reduce the external current account deficit, move toward a sustainable fiscal position, and eliminate SBP financing of the government. To achieve the 2008-09 target, the government will increase tax revenue by 0.6 percentage points of GDP and reduce non-interest current expenditure by about 1.5 percentage points of GDP, mainly through the elimination of oil subsidies by December 2008 and electricity subsidies by June 2009. At the same time, domestically financed development spending will be reduced by about one percentage point of GDP through better project prioritisation.