ISLAMABAD: The International Monetary Fund (IMF) has highlighted ‘new information’ that the data on government guarantees dating back to fiscal year 2016 was reported inaccurately and approved disbursement of $500 million to Pakistan subsequent to a staff-level agreement on the second to fifth review under the Extended Fund Facility (EFF) programme.
The IMF uploaded two press releases on its website dated 24 March – one, data revision linked to non complying purchase and two, approval by its Executive Board for a $ 500 million disbursement.
The Fund’s Executive Board approved a 39-month EFF for Pakistan in the amount of SDR 4,268 billion (about US$6 billion), equivalent to 210 percent of quota, on July 3, 2019. The first review completed by the Executive Board on December 19, 2019, reported observance of the quantitative performance criteria (PC) at end-September 2019, including the amount of government guarantees however upon completion of the first review under the EFF, Pakistan made a purchase equivalent to SDR 328 million (about US$452.4 million).
Subsequently, new information that came to the authorities’ attention, and which was shared with Fund staff, has revealed that the data on government guarantees dating back to fiscal year 2016 was reported inaccurately.
The revised data indicates a non-observance of the performance criteria on government guarantees at end-September 2019 by a margin of Rs 357 billion (about 0.9 percent of GDP), which resulted in a non-complying purchase and a breach of obligations under Article VIII, Section 5 of the IMF Articles of Agreement.
The authorities previously reported that the performance criteria had been met with a margin of Rs 55 billion (0.1 percent of GDP) at end-September 2019. The statistical revision only had a small impact on public debt.
The Fund noted that the authorities have taken strong corrective actions to address institutional and technical shortcomings that gave rise to the inaccurate information, including: (i) creating a working group to reconcile and cross-check guarantees and debt data; (ii) announcing additional functions for the Debt Policy Coordination Office (DPCO), including to act as custodian of all guarantees issued by the federal government; and (iii) publishing a semi-annual debt bulletin that consolidates key debt statistics. Beyond these actions, the authorities have committed to include a list of all new guarantees expected to be issued in the FY 2022 budget submitted to Parliament.
At the conclusion of the meeting, Deputy Managing Director Antoinette Sayeh and Acting Chair, stated:
“The Executive Board of the IMF reviewed Pakistan’s remedial actions and data revisions linked to a noncomplying purchase under the Extended Arrangement under the Extended Fund Facility as well as a breach of obligations under Article VIII, Section 5.
The non-complying purchase arose as a result of a lack of inter-agency coordination in the compilation of government guarantees provided by the federal government to state-owned enterprises that contributed to incorrect estimates of government guarantees starting as far back as fiscal year 2016.
In view of the strong and proactive commitment by Pakistan to provide timely and accurate data to the IMF in the future, the Executive Board decided not to require further remedial action in connection with the breach of obligations under Article VIII, Section 5. As the authorities have taken appropriate corrective measures since the purchase in December 2019, the Executive Board also granted a waiver for the nonobservance of the quantitative performance criterion.”
The IMF’s transparency policy requires publication of misreporting related to use of Fund resources, including Executive Board findings in these matters.
The second press release uploaded by the IMF on its website noted that program performance has remained satisfactory notwithstanding the unprecedented challenges of the Covid-19 shock, and the authorities’ policies have been critical in supporting the economy and saving lives and livelihoods. The Pakistani authorities remain committed to ambitious policy actions and structural reforms to strengthen economic resilience, advance sustainable growth, and achieve the economic reform program medium-term objectives.
The program aims to support Pakistan’s policies to help the economy and save lives and livelihoods amid the still unfolding Covid-19 pandemic, ensure macroeconomic and debt sustainability, and advance structural reforms to lay the foundations for strong, job-rich, and long-lasting growth that benefits all Pakistanis.
The Fund added that the Pakistani authorities have continued to make satisfactory progress under the Fund-supported program, which has been an important policy anchor during an unprecedented period. While the Covid-19 pandemic continues to pose challenges, the authorities’ policies have been critical in supporting the economy and saving lives and livelihoods. The authorities have also continued to advance their reform agenda in key areas, including on consolidating central bank autonomy, reforming corporate taxation, bolstering management of state-owned enterprises, and improving cost recovery and regulation in the power sector.
“Reflecting the challenges from the unfolding pandemic and the authorities’ commitment to the medium-term objectives under the EFF, the policy mix has been recalibrated to strike an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reforms while maintaining social cohesion. Strong ownership and steadfast reform implementation remain crucial in light of unusually high uncertainty and risks.
“Fiscal performance in the first half of FY 2021 was prudent, providing targeted support and maintaining stability. Going forward, further sustained efforts, including broadening the revenue base carefully managing spending and securing provincial contributions will help achieve a lasting improvement in public finances and place debt on a downward path. Reaching the FY 2022 fiscal targets rests on the reform of both general sales and personal income taxation. Protecting social spending and boosting social safety nets remain vital to mitigate social costs and garner broad support for reform.
“The current monetary stance is appropriate and supports the nascent recovery. Entrenching stable and low inflation requires a data-driven approach for future policy rate actions, further supported by strengthening of the State Bank of Pakistan’s autonomy and governance. The market-determined exchange rate remains essential to absorb external shocks and rebuild reserve buffers.
“Recent measures have helped contain the accumulation of new arrears in the energy sector. Vigorously following through with the updated IFI-supported circular debt management plan and enactment of the National Electric Power Regulatory Authority Act amendments would help restore financial viability through management improvements, cost reductions, regular tariff adjustments, and better targeting of subsidies.
“Despite recent improvements, further efforts to remove structural impediments will strengthen economic productivity, confidence, and private sector investment. These include measures to (i) bolster the governance, transparency, and efficiency of the vast SOE sector; (ii) boost the business environment and job creation; and (iii) foster governance and strengthen the effectiveness of anti-corruption institutions. Also, completing the much-advanced action plan on AML/CFT is essential.”
Copyright Business Recorder, 2021
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