Pak rejects IMF demand to freeze govt employees salaries; budget on June 12

The government is struggling to strike a balance between fiscal consolidation and providing an impetus to economic growth

Pakistan has rejected the demand made by the International Monetary Fund (IMF) to freeze the salaries of government employees.

Sources close to the matter informed Dunya News that IMF, during budget talks with Pakistan via two online digital meetings, urged for spending cuts in the next budget. On the other hand, Islamabad said that it cannot cut the salaries of government employees as it is necessary to protect government employees and pensioners from inflation.

The government will unveil the budget on June 12 and struggles to strike a balance between continuing with the fiscal consolidation and providing an impetus to economic growth.

Sources further revealed that the USD 6 billion expansion fund facility of the IMF program will be restored when the government presents the next budget in accordance with the IMF Macroeconomic Framework.

The global money lender has urged Pakistan to adhere to the fiscal consolidation path due to a high and unsustainable public debt that is set to hit 90 per cent of the total value of the national economy by showing a nominal primary deficit in the new budget, The Express Tribune reported.

The outbreak of the deadly novel coronavirus has exposed vulnerabilities of Pakistan's economy that had already been struggling owing to weak economic foundations that caused fiscal and current account deficit crisis after every four to five years.

Owing to the prevailing tight fiscal situation, growing public debt and Pakistan's decision to seek debt relief from G20 countries, the IMF was asking Islamabad to freeze salaries of government employees, sources in the country's Finance Ministry were quoted as saying.

One of the major reasons for the government to resist the IMF demand was high inflation that has eroded people's real income.

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, said the sources.