The International Monetary Fund (IMF) has reportedly conveyed serious concerns over State Bank of Pakistan (SBP) Amendment Bill 2010 in the present shape after amendments in the originally proposed law, it was learnt. Besides, the sources said, IMF has also not agreed to 4 percent fiscal deficit and wanted economic managers to reduce it to below 4 per cent for next fiscal year to curtail inflation.
"Pakistan would not be able to finance 4 per cent fiscal deficit and bring inflation down," a member of the IMF mission reportedly told the Pakistani team. The monetization of fiscal deficit would spike inflation and increase the debt burden and cost of debt servicing. The SBP law in the current shape does not look so good for operational autonomy of the Central Bank required to minimise public sector borrowing.
Another area of concern for the IMF reportedly was huge borrowing by the government for commodity operation as it was crowding out private sector borrowing. The current economic situation of low growth, high inflation and huge unrelenting borrowing of the government from banking sector was demonstrative of an unsustainable situation unless the economic managers take some broad-based taxation measures to ensure a permanent flow of revenue for financing huge subsidies on electricity, financing of commodity operations and losses of state-owned enterprises (SOEs). The IMF reportedly suggested to the government to take revenue measures and control net spending to strengthen the weak fiscal framework. The IMF mission was reportedly unhappy over tediously slow moving reforms in power sector and wanted to speed up the reforms process to minimise inefficiencies at various stages that accounted for a huge subsidy and compounded the problem of circular debt.
An official said that the IMF mission would closely watch the measures proposed in the budget and approved by the Parliament to address concerns of the lending body. The government has not given firm assurance that it would achieve 5.3 per cent fiscal deficit for the current fiscal year and economic managers reportedly said that they are planning to meet the target.