The IMF team is here; and there are two main quantitative targets out of six that the Fund is keeping critical eye on for quarterly reviews (first review is for Sep-19 numbers, expected in Nov-19).  It’s about floor on the net international reserves (NIR) and ceiling on government primary deficit – NIR essential measures the performance of SBP and primary deficit is linked to MoF performance.  Rest of the targets are somehow linked to these two. If these two are falling in place, rest of the equations will be fitting automatically.

Enough has been covered on primary deficit by media and analysts’ community, and the challenges are huge. The good news is that on NIR targets SBP is well positioned. This space covered the NIR position of Jan-19 and compared it with Sep-16. There was slippage of $18.8 billion in mere 2.5 years. For details read “Scary NIR – don’t look at it”.

The NIR, as per IMF calculation matrix, were standing at negative $11.9 billion in Dec-18 as compared to positive $7.5 billion in Sep-16. Seeing the continuous fall, IMF based its projections accordingly. In the Fund report published in Jul-19, the Jun-19 NIR was projected at negative $17.7 billion. To the surprise of many, the NIR in Jun-19 stood at negative $15.5 billion. There was deterioration of $3.7 billion between Jan-Jun19 period, but the Fund was expected higher slippage.

The number is estimated to improve further to negative $14.7 billion in Aug-19; as in calculation of NIR a few items are released quarterly and some are published monthly. The SBP foreign reserves have improved from $7.3 billion to $8.3 billion from Jun-19 to Aug-19. The forward swap position has improved from minus $8.0 billion in Jun-19 to $7.3 billion in Aug-19 (it’s part of performance criteria, and the number is better than Sep-19 target).

In case of liabilities with other central banks and Chinese currency swap, the numbers are assumed at Jun-19 level, and there is no news of these items increasing as such since June. IMF liabilities are projected to increase by $991 million (IMF first tranche) to $6.7 billion. That is how the number is calculated for Aug-19 and its estimated at negative $14.7 billion versus Sep-19 IMF target of negative $18.8 billion.

The target is to be met comfortably, and the number in Aug-19 is even better than Dec-19 target of negative $16.3 billion. Seeing this performance, the targets for Mar-20 (-$12.8 bn) And Jun-20 (-$10.8 bn) will be a piece of cake. That is a good start by Raza Baqir; and good performance at external front can be used as a bargaining chip for a waiver in fiscal deficit target for Sep-19.

Rest of the four binary targets (performance criteria) are linked to these two. NIR is check marked as well as forward swap position. With foreign flows building up along with foreign debt based government financing, ceiling on net domestic assets (NDA) of the SBP and ceiling on net government borrowing from SBP targets are likely to be met.  Ceiling on NDA of SBP stock is calculated by subtracting NIR from reserve money – since NIR is negative and its falling, the NDA of SBP target is getting in place. Its calculated at Rs8.8 trillion as of Aug-19 against the target of Rs8.9 trillion in Sep-19 – tick marked.

Similarly, the ceiling on net government borrowing from SBP is computed at $6.8 trillion versus target of $7.8 trillion for Sep-19 – that’s also done. The ceiling on amount of government guarantees are in control as government is simply not issuing any fresh guarantee. The only bone of contention out of the binary targets is ceiling on primary deficit and for that either mini budget has to come in or privatization has to materialize. Apart from that, forget about development spending in federal, Punjab and KP.