MONEY WEEK: The maths of meeting IMF targets

The government was missing its net zero quarterly budgetary support borrowing target from SBP by Rs130 billion as of June18. Reliable sources however reveal that the government has achieved targets of its borrowing from SBP, ceiling on SBP's net domestic assets and floor on SBP's net foreign assets.
At a time when FBR is likely to miss its annual tax revenue target, implementation of reformed GST (read VAT) is being delayed and there is a visible slippage in the fiscal deficit target, fulfilment of such targets is a good sign. The government was anticipating that it might not get all the budgeted and other foreign funds due to slippages in both its revenue and expenditure estimates.
The flurry of inflows from Coalition Support Fund and IMF's budgetary support programme during April-May improved SBP's foreign currency liquidity position. Hence, the government sold $600 million to commercial banks on its swap arrangement which provided a cushion for SBP to manage its dollar liquidity at the time of need.
With government retirement of Rs74 billion of central bank borrowing during the week ending June 18, the slippage of the central bank, reduced to Rs130 billion. This might improve by Rs20-30 as the government received other funds in the very last week of the last fiscal year.
The government received Rs50 billion from SBP profit for the fourth quarter to slash its borrowing from the central bank by a similar amount. It also received $710 million from ADB, USAID and World Bank, which it conveniently converted the amount into rupees and submitted it to SBP (hence no change in money supply) for retiring Rs60 billion of its liability.
After accounting for these Rs110 billion, the remaining amount is adjusted by the buffer stock within the foreign reserves maintained since the start of fourth quarter.
SBP might have carried a buy of say $600 million (Rs50 bn) in a buy-sell swap arrangement with commercial banks. Commercial banks would have bought government treasury bills of equivalent rupee amount and that toll is shifted from an asset of SBP to respective commercial banks while government liabilities total stands still. Now after meeting the targets, fiscal managers should prepare a strong case for the fifth review which may start in the latter part of this month.
The implementation of VAT (now reformed GST) is still pending. The government will nevertheless try to convince the Fund as it promised to bring reformed GST by October to release half of the remaining $3.4 billion in the upcoming tranche. The fact that IMF Chief Strauss Kahn recently acknowledged Pakistan's performance under the IMF programme makes a strong case of getting $1.7 billion by mid August.
MONEY AGGREGATES:
The adjustment in government budgetary support borrowing, near the fiscal year end, was the highlight of the week ending June 18. State borrowing from the central bank slashed by a massive Rs78 billion but it was partially adjusted by Rs30 billion increase in government borrowing from the commercial banks.
The rest was some adjustment in NFA (as mentioned above) which increased by Rs15 billion for the week under discussion.
With the wheat commodity procurement season approaching its tail end, only Rs4 billion were raised from quasi fiscal operations. A rare Rs10 billion credit to private sector halted the six weeks long downward hill journey.
Rs10 billion decline in currency-in-circulation and muted bank deposits resulted in 0.21 percent fall in monetary aggregate growth, which made the year to date M2 growth at 9.51 percent.

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KEY MONETARY AGGREGATES AS ON JUNE 18

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                                        Rs (mn)

                                    18-Jun    11-Jun     Change

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Currency in Circulation            187,631   197,381    (9,750)

Total Demand & Time Deposits       299,684   300,684    (1,000)

Broad Money (M2)                   488,638   499,384   (10,746)

NFA                                 71,154    55,644     15,510

NDA                                417,485   443,741   (26,256)

Net Government Borrowing           461,677   505,841   (44,164)

Borrowing for budgetary support    392,622   441,186   (48,564)

from SBP                           132,722   211,355   (78,633)

from scheduled banks               259,900   229,831     30,069

Commodity operation                 69,801    65,401      4,400

Credit to non-govt sector          174,086   164,044     10,042

to private sector                   85,301    75,582      9,719

to PSEs                             87,903    87,589        314

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Source: SBP

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