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$ 55 million repayment to IMF

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The IMF has asked the government to make all the budgetary numbers public on regular basis

From Shamim Ahmed Rizvi, Islamabad
May 01 - 07, 2000

While there are strong indications that IMF Board may approve a new 3 years package of about $ 2.5 billion for poverty reduction and growth programme, it is also likely that Pakistan may have to accept some penalty for misleading the fund's authorities by fudging budget figures in the past.

The Finance Minister Mr. Shaukat Aziz has admitted that former government dctored budget figures and has assured the IMF authorities that Pakistan has made a clean break from the past budget figures in future. Our finding the accounting error, advising the fund accordingly and then taking measures to prevent the occurrence of such discrepancy in future clearly goes in our "favour" Aziz said while talking to Reuters after his meeting with IMF Board in Washington last week. IMF will review the situation and take a decision on this matter within the next few weeks, he added.

According to the latest information from Fund's sources: Pakistan may be asked to repay about 55 million dollar as penalty for discrepancy in budget numbers. Pakistan received last tranche of similar amount from the Fund in May 99 under Extended Fund Facility (EFF). "This money was received on the basis of data the integrity of which is doubt. The government of Pakistan has to repay this amount" a source claimed.

Since Pakistan has reported this issue in writing to the Fund management, the institution of penalty becomes automatically operative. Sources in the multilateral donors suggested there was an option for the government to discuss this issue verbally to avoid formal imposition of the repayment clause. However, the present authorities have preferred to go on record to tell the Fund management about the discrepancy.

According to official sources, the deposed government was committed in understating the budget deficit by 1.5 per cent each in 1997-98 and 1998-99, which they did by fudging budgetary data to the tune of Rs. 90 billion or 3 per cent of GDP.

The present government unearthed this forgery in December last, when it suddenly detected a mammoth jump in the non-bank borrowing number of 1998-99, under the head of National Savings Schemes. When the record of 1997-98 was re-checked, a similar anomaly was found there as well.

The actual budget deficit recorded in 1996-97 was Rs. 155.6 billion or 6.5 per cent of GDP. The deposed government claimed a credit by showing a one per cent cut in the deficit level from 6.5 to 5.5 per cent of GDP in 1997-98 or Rs. 151.5 billion.

In 1998-99, a budget deficit was estimated at Rs. 136 billion or 4.5 per cent of GDP by the State Bank of Pakistan (SBP), against the official claim of 3.4 per cent by then Finance Minister Ishaq Dar in his annual budget statement.

In 1997-98, the PML government announced collection of Rs. 80.9 billion through non-bank sources to finance the budget deficit, and in 1998-99 a figure of Rs. 79.7 billion as shown under the same head. On both these occasions, these figures were under stated by Rs. 40 billion and Rs. 50 billion respectively.

The authorities were showing a smart tactic by declaring fewer deposits under the National Saving head. Correspondingly a reduced number was being shown under servicing of these debts. Knowledgeable source said that some amounts channelized into the defence budget were also not being shown, by declaring sharp reductions to the Fund management in the defence spending.

The non-bank borrowing is a source of budget deficit financing whereas, interest payments and defence allocations come under the expenditures head. Since both these numbers were being understated regularly, no one was ever able to unearth this jugglery of numbers.

The present authorities informed the Fund management in December about the whole financial engineering by maintaining two separate books in the last two years. As a result of this development, the Fund management sent a fact-finding mission to Islamabad few weeks ago to investigate the whole matter.

The Directors strongly questioned this happening of the past two years, which is the second such incident in Pakistan. Earlier, a similar complaint of fudging was made during the PPP government.

The IMF has also expressed great reservations, but the honest reporting of the present regime is being seen as a salvaging act. However, the Board has made it clear to the government that IMF support would now depend on the strength of the programme, in addition to transparent reporting of the revenue and expenditure true sides of the budget. The IMF has asked the government to make all the budgetary numbers public on regular basis to ensure maximum transparency of the data.

Finance Minister Shaukat Aziz told newsmen that the present government does not want to hide any thing. "We have decided to come clean. Before the start of the New programme we detected the discrepancy, held our own inquiries, informed the IMF. The fund was requested to send a fact-finding mission to reconcile the numbers in this regard. Detailed investigations revealed that the actual budget deficit for 1997-98 was 7.5 per cent of the GDP against the actuarial reporting of 5.4 per cent. In 1998, the real deficit was 6.1 per cent against the claimed 3.4 per cent by the Ministry of Finance and 4.5 per cent by the State Bank of Pakistan (SBP). These numbers, which the donors call fudging to hide the actual budget deficits, were resulted due to discrepancies in the non-bank borrowing.

There were also irregularities on the expenditure side of the budget, mainly defence and the interest payments. The government says that discrepancy of the budget numbers was the result of poor accounting and weak budgeting procedures.

The Finance Minister of ousted Nawaz Sharif government in whose tenure the funding took place challenged the government findings. He alleged that it was a part of present government campaigns to malign and discredit the previous government as well as a play for justifying a higher deficit in the next year budget. But Mr. Sartaz Aziz preferred to keep silent after the investigation made by the IMF fact finding mission.

The Ministry of Finance has now set up a fiscal monitoring committee which will go through budgetary figures since 1990.

In view of the fresh data the revised budget deficit estimate for the current fiscal year is 5.6 per cent of the GDP that would also necessitate the need of strong adjustment in the next fiscal year to bring it down to a more sustainable level. For that matter documentation of the economy and broad-basing of the tax system would be two major guiding principles in any new IMF facility in addition to the strong monitoring and transparent reporting requirements.