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International Monetary Fund urges this country to freeze salaries of government employees

International Monetary Fund (IMF) has urged Pakistan to freeze salaries of government employees and adhere to the fiscal consolidation path by showing a nominal primary deficit in the new budget – the two demands that Islamabad finds hard to digest.

The IMF is insisting that Pakistan should continue to follow the fiscal consolidation path due to a high and unsustainable public debt that is set to hit 90% of the total value of national economy.

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, said 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 proposal of ending the car monetisation allowance for grade-20 to 22 officers also came under discussion in the Ministry of Finance but it was unlikely to be implemented at the current stage.

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 Rs184 billion or 0.4% 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, said the sources.

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. The finance ministry is keen to restore the IMF programme and is holding video conferences with the IMF staff in Washington.a

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