IMF asks Pak to freeze govt employees' pay, stick to fiscal consolidation

The Pakistan government is resisting the demand due to high inflation that has eroded people's real income

The IMF has asked cash-strapped Pakistan to freeze salaries of government employees and adhere to the fiscal consolidation path by showing a nominal primary deficit in the new budget due to the unsustainable public debt that is set to hit 90 per cent of the total value of the national economy.

Pakistan is finding it hard to concede to the two demands but the IMF is insisting that the country should continue to follow the fiscal consolidation path due to the high and unsustainable public debt, the Express Tribune reported on Friday.

Owing to the prevailing tight fiscal situation, growing public debt and Pakistan's decision to seek debt relief from G-20 countries, the International Monetary Fund has asked Islamabad to freeze salaries of government employees, the daily reported, citing sources in the Ministry of Finance.

However, the government is resisting the demand due to high inflation that has eroded people's real income.

Nonetheless, it is inclined to abolish over 67,000 posts that have remained vacant for over one year and is also ready to further squeeze current expenditures including a ban on purchase of vehicles.

The IMF's key demand, which was also the reason for seeking to freeze the salaries, was that the government should announce a primary budget deficit target total deficit excluding interest payments of only Rs 184 billion or 0.4 per cent of gross domestic product (GDP).

Pakistan has its own reasons for resisting the IMF's demands as it does not see a significant jump in revenue collection in the next fiscal year due to the prevailing economic conditions.

The government is also inclined to give a raise in salaries due to high inflation that has eroded the real income of people, the daily reported.

The government will unveil the budget on June 12 as it struggles to strike a balance between continuing with the fiscal consolidation and providing an impetus to economic growth. The Finance Ministry is keen to restore the IMF programme and is holding video conferences with the IMF staff in Washington.

Against the IMF's demand for the 0.4 per cent primary budget deficit, the government has proposed that the target should be 1.9 per cent of GDP or Rs 875 billion.

The expenditure on interest payments, estimated at Rs 3 trillion or 6.5 per cent of GDP in the next fiscal year, is in addition to that.

This means the budget deficit target, as suggested by the IMF, will be around 7 per cent while the federal government sees the realistic deficit target at 8.4 per cent of GDP or Rs 3.9 trillion.

For this fiscal year, the estimated primary deficit is 2.9 per cent of GDP and the IMF wants a fiscal adjustment of 2.5 per cent within one year.

Another issue between Pakistan and the IMF was the FBR's tax target, which the IMF has proposed to be Rs 5.1 trillion. The FBR thinks it cannot collect more than Rs 4.7 trillion. Another FBR target that is currently under discussion is Rs 4.990 trillion.

For this fiscal year, the IMF had set a Rs 5.5-trillion tax collection target but actual collection is likely to remain around Rs 3.9 trillion. The politically sensitive issue for the government is the increase in salaries of civilian and military employees.