Finance adviser in-waiting Miftah Ismail said on Tuesday that the new government would restart negotiations with the International Monetary Fund (IMF) for balance of payments support, accusing the PTI government of leaving behind an unprecedented economic mess, including the highest-ever fiscal deficit of Rs6.4 trillion (slightly more than 10% of GDP).
“The most crucial issue is to stabilise and increase falling foreign exchange reserves,” he stated. “It’s critical to move the IMF programme ahead with mutual understanding.”
In response to a question, he stated, “We will move through with the present programme and complete its three reviews by September,” referring to the $3 billion in pending payments.
He was addressing at a hurriedly convened news conference alongside Senator Musaddiq Malik, the former caretaker energy minister, and former Sindh governor Muhammad Zubair.
Mr Miftah said that because of the baggage left by the PTI government, all problems would take time to resolve, but that prices for wheat flour and sugar will be reduced down quickly with the help of provincial governments.
“The Khan government has wreaked havoc on the economy and deceived the public by claiming that the relief package proposed to save the government in its final days would be funded by new revenues. In fact, because there was no funding available, it increased the fiscal deficit,” Mr Ismail stated.
“We will speak with the IMF right away and begin negotiations.” “We’ll do our best,” he continued, “and hopefully agree on things that are viable under the circumstances.”
“The lag effect of fiscal and monetary expansion measures makes it unable to control inflation promptly.” First, we’ll talk to the IMF and try to persuade them to relax the stringent criteria so that the government can help the country.”
He stated that the current account deficit (CAD) for the current fiscal year is expected to be $20 billion, the largest level ever. It meant Pakistan would have to pay $6 billion in Canadian dollars on top of around $3 billion in debt repayments in the remaining months of the fiscal year. The funding requirements for next year are expected to be $30 billion.
“You must finance this shortfall, which necessitates the continuation of the IMF programme.”
He said that the State Bank’s reserves were currently $11.3 billion, and that without an IMF programme, neither friendly countries, the World Bank, or the Asian Development Bank, nor the international bond market could help.
The former finance minister stated that he did not want to paint a doomsday scenario, but that it was important to record what the PTI government had left behind, and that the figures he was given were finalised by outgoing finance minister Shaukat Tarin and presented to the new coalition government by the finance ministry.
Deficit in the budget
He claimed that the previous government set the budget deficit limit at Rs3.990 trillion, but that it had now been raised to Rs5.6 trillion, the largest level ever breached.
But that’s not all; they also left Rs800 billion in extra grants, bringing the total budget imbalance to Rs6.4 trillion. This included a Rs373 billion ‘highly explosive landmine package’ that included lowering petroleum and electricity prices and then freezing them for four months when international prices rose, as well as Rs220 billion needed by gas companies to avoid bankruptcy and Rs80 billion needed by generation companies to stay afloat.
He claimed that while Mr Tarin was finance minister, the figures were finalised, estimating that expenditures would be around Rs8.7 trillion this year, compared to a budget projection of Rs7.5 trillion. However, this did not include Rs800 billion in extra grants, bringing total expenditures to Rs9.5 trillion.
He said that the total debt owed to Nasir-ul-Mulk since Prime Minister Liaquat Ali Khan was Rs25 trillion, with the previous government accumulating more than 80% of that debt in just four years.
When asked about the rise in fuel prices, Miftah Ismail stated that while a decision would be made after reviewing the oil regulator’s working paper on April 15, it was vital to understand why the previous government had broken its promises. He was perplexed as to why the administration launched yet another amnesty scheme to appease its cronies, this time for future incomes and assets, since all previous amnesties had only been granted to whiten past assets.Prime Minister Shehbaz Sharif resolved in his first meeting with economists to arrange two separate meetings with agriculturists and businessmen to reverse the food import trend, which cost $8 billion in sugar and wheat alone, according to Miftah Ismail. When the PML-N was in power, however, the country used to export both items.
He stated that he would advocate for the privatisation of Pakistan Steel Mills and Pakistan International Airlines while protecting their employees, and that he would provide provinces electricity distribution firms.
He stated all efforts will be taken to keep deficits under control, and he chastised the PTI for breaking IMF agreements by giving an amnesty scheme for businessmen.