Mission chief says there was no firm requirement to float the bond when markets were distressed
The International Monetary Fund (IMF) has apparently refused to give its backing to help Pakistan explain an expensive Eurobond deal to people, saying there was no firm requirement to float the paper at a particular time, especially when global markets were distressed.
“The Eurobond was part of a foreign financing plan, but there is an adjustor in the IMF programme, so it was not a firm requirement to go ahead with the issue in any particular time, particularly when markets were not good,” said Harald Finger, the IMF’s Washington-based Mission Chief to Pakistan.
He spoke to the media through an audio link and discussed key features of an IMF report on Pakistan’s economy that was released on Tuesday.
Last month, Pakistan raised $500 million by floating the Eurobond at an interest rate of 8.25%, prompting financial market experts to question the deal. The State Bank of Pakistan and the Ministry of Finance tried to link the expensive deal with the IMF programme, claiming that $500 million would be helpful in meeting many of the IMF’s performance criteria.
Read: Opposition criticises: Eurobond issue slammed
The IMF report expressed doubts about the government’s ability to hit the current fiscal year’s budget deficit target of Rs1.292 trillion or 4.3% of gross domestic product (GDP). It stated there were risks to the deficit target that might slip beyond the ceiling by 0.3% or Rs90 billion.
Finger said the IMF “did see small gaps in fiscal accounts”, adding the government had given assurances that it would be able to absorb it in the 4.3% deficit target by cutting down current expenditures.
In the case of slippages, Pakistan has also assured the IMF that it will bring forward plans to eliminate tax concessions and exemptions slated for fiscal year 2016-17. Secondly, the government will slow down development spending as a contingency measure.
The IMF mission chief also expressed doubts over the government’s ability to privatise Pakistan Steel Mills and Pakistan International Airlines by the set deadlines.
Finger said there were plans to privatise PIA by June next year and steel mill by March 2016, but it may take longer.
Responding to a question about playing with the budget deficit figure of last fiscal year, Finger said there was certainly room for improvement in data quality, but the IMF did not have any evidence of intentional wrongdoing by Pakistan.
Finger, however, said the IMF did slightly revise upward last year’s deficit figure. Against the government’s claim of Rs1.456 trillion or 5.3% deficit, the IMF put the figure at Rs1.488 trillion or 5.4%.
Elaborating, he said the government had parked some external loans outside the Public Sector Development Programme (PSDP), but these should have been included in the PSDP spending for calculating the budget deficit.
Finger stressed that state-owned enterprises did not fall within the definition of general government, therefore, the circular debt of power distribution companies was not included in the general government deficit.
Read: Pakistan’s new Eurobond earns lukewarm response
Extending his support to the farmer package, Finger said the proposed textile package would be discussed in the upcoming review meetings in Dubai.
He expressed concern over an audit report that showed large-scale fraud in the power sector. This would also be discussed in the review meetings to make sure that there was adequate governance in the power sector, he added.
To a question about a new IMF programme, Finger said when the current programme would be nearing its end, the IMF would discuss whether there was a need for another loan. “The IMF is open to any programme,” he said.
Published in The Express Tribune, October 7th, 2015.
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