ISLAMABAD: The government has requested for modification in the performance criteria for budget deficit to increase the cumulative end-quarter ceiling of Rs22 billion to allow space for urgent security outlays and avoid undue cuts in other priority spending, The News learnt on Wednesday.
The Finance Ministry submitted the Letter of Intent (LoI) and the fourth Supplementary Memorandum of Economic and Financial Policies (SMEFP) to the IMF office in Islamabad after the recently-held discussions on the fourth review under the Standby Arrangement (SBA).
The government of Pakistan requests that the Executive Board of the IMF complete the fourth review and approve the fifth tranche, under the SBA, of an amount equivalent to SDR 766.7 million ($1.2 billion), said the LoI.
“It (the Finance Ministry) wants a modification in the end-June 2010 performance criteria for the budget deficit to increase the cumulative end-quarter ceiling by Rs22 billion (0.15 per cent of GDP) in order to allow space for urgent security outlays and avoid undue cuts in other priority spending,” said a text of the LoI exclusively available with The News.
The LoI, signed by Adviser to the Prime Minister on Finance Abdul Hafeez Shaikh and State Bank of Pakistan Governor Syed Salim Raza, further requested a modification in the end-June 2010 performance criterion pertaining to raising the floor for the net foreign assets of the SBP by $300 million, taking into account our strengthened external position.
The memorandum supplements Pakistan’s Memorandum on Economic and Financial Policies (MEFP) for 2008/09ñ09/10 of November 20, 2008 and the first, second, and third supplements thereto dated March 16, July 29, and December 11, 2009, respectively. It describes policy implementation to date and lays out additional policies agreed in the context of the fourth review under the SBA.
“We also request waivers of nonobservance for the end-March quantitative performance criteria on the overall budget deficit (excluding grants) and net government borrowing from the State Bank of Pakistan (SBP),” it added.
Although final data for this quarter are not yet available, preliminary information shows that we missed the end-March quantitative performance criterion on fiscal deficit by 0.4 per cent of GDP, on account of lower revenue and higher security-related expenditures and shortfalls in disbursements of IDP (Internally-displaced Persons) grants and Tokyo-related multilateral assistance.
The Technical Memorandum of Understanding (TMU) describes the monitoring arrangements under the SBA-supported programme. It replaces from April 1, 2010 onwards the TMU dated December 11, 2009.
We also missed the end-March quantitative performance criterion on net government borrowing from the SBP by 0.2 per cent of GDP due to a delay in the disbursement of external financing to the budget. We plan to strengthen government liquidity management, including through use of pre-financing, to reduce recourse to the central bank overdraft and to ensure we meet end-quarter targets for net borrowing from the SBP, said the letter.
The government of Pakistan and the IMF delegation recently held discussions on the fourth review under the SBA. Based on these discussions, the government of Pakistan has updated the economic programme for 2009/10, as reflected in the attached Fourth Supplementary Memorandum of Economic and Financial Policies.
The government has corrected nearly all of the fiscal slippage from the first quarter of 2009/10 in the second quarter when all quantitative performance criteria for end-December 2009 were observed, except the budget deficit target, which exceeded by 0.02 per cent of GDP, and made progress in preparing for the introduction of the Value-Added Tax from July 1, 2010, the letter said.
However, our fiscal policy continues to be challenged by high security outlays and shortfalls in external financing, and we consider it necessary to adjust our fiscal programme for the remainder of 2009/10, the letter said.
The policies set out in the attached SMEFP are adequate to achieve the objective of the programme through further consolidation of macroeconomic stability and advance our ambitious reform agenda, it hoped. However, the government stands ready to take any additional measures deemed appropriate for this purpose, and will consult with the Fund on the adoption of these measures in accordance with the Fund’s policies on such consultations.
The government will also provide the Fund with information it may request to monitor progress in implementing economic and financial policies, the LoI concludes.
HIGHLIGHTS
• Pakistan requests IMF to complete fourth review and approve fifth tranche
• IMF urged to modify end-June 2010 performance criterion for raising floor for net
foreign assets of the SBP by $300 million
• Islamabad also requests waivers of non-observance for the end-March quantitative performance criteria on overall budget deficit and net government borrowing
Source The News
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