Pakistan and the IMF
The Executive Board of the International Monetary Fund (IMF) reviewed today data revisions and misreporting by Pakistan, along with the authorities' commitment to promptly repurchase SDR18.95 million in outstanding debt to the IMF, and to voluntarily repurchase another SDR 22 million by May 31, 2000.
Following the Executive Board's discussion on Pakistan, Eduardo Aninat, Deputy Managing Director and acting Chairman of the Board, summarized the discussions. Mr. Aninat stated:
"Executive Directors expressed concerns over the misreporting of fiscal data to the IMF between 1997 and 1999. Following their discovery of discrepancies in the fiscal data in late 1999, the authorities informed IMF staff and requested technical assistance to help with the data revision process. In response, a mission from the IMF's Fiscal Affairs Department went to Islamabad in January 2000 to assess the magnitude of the discrepancies, and the factors responsible for the discrepancies. As a result of subsequent data revisions, Pakistan's budget deficit for 1997/98 was revised upward by 2 percent of GDP to 7.5 percent of GDP, and the deficit for 1998/99 was raised by 1.4 percent of GDP to 5.9 percent of GDP. The technical assistance mission, with the full cooperation of the authorities, found that the discrepancies had arisen principally in the domestic nonbank financing data, where the amount of sales of National Savings Schemes (NSS) instruments had been erroneously recorded in the fiscal reports. External and domestic bank financing data also required revision. The corresponding adjustments to expenditure data, which have so far only been completed for 1998/99, had been mainly to interest payments--corresponding to the higher-than-previously reported domestic nonbank debt--and defense spending. In addition, some unbudgeted spending was identified.
"In their discussion of the issue, Directors expressed serious concern that the erroneous data had misled IMF staff and the Executive Board about economic performance; prevented the formulation and implementation of timely corrective measures; and resulted in the design of an adjustment program that was partly based on inaccurate information. They also noted that the provision of inaccurate data had allowed Pakistan to make substantial purchases under the extended arrangement and the Compensatory and Contigency Financing Facility, and under the Poverty Reduction and Growth Facility, that otherwise may not have been available.
"Observing that the discrepancies in the fiscal data had been discovered by the current authorities themselves and had immediately been brought to the attention of the IMF staff, Directors commended the current authorities for their prompt and full cooperation with the staff in the data revision process. They noted that the misreporting of fiscal data had in part resulted from negligence in compiling and reconciling the fiscal reports for 1997/98 and 1998/99. In addition, weaknesses in the fiscal accounting, reporting, and audit procedures--including the absence of systematic data reconciliation processes and a mechanism to fully involve the Accountant General Pakistan Revenue (AGPR) in the preparation of fiscal reports--contributed to the discrepancies in the fiscal data.
"Directors emphasized that accurate reporting was crucial in maintaining trust between the IMF and its members, which is fundamental to the work of the IMF as a cooperative institution. Therefore, Directors strongly urged Pakistan to take timely actions to prevent a recurrence of similar problems.
"Nevertheless, Directors welcomed the steps being taken by the authorities with the help of technical assistance from the IMF to strengthen fiscal reporting and to ensure the accurate and timely production of fiscal reports, particularly the recent establishment of the inter-agency Fiscal Monitoring Committee, clear delineation of data compilation and reconciliation responsibilities, and formulation of a new reporting format and procedures. They felt strongly that the credibility of fiscal reports would be enhanced if the AGPR were required to verify the accuracy of the reports. They also urged the authorities to finalize the data reconciliation process for the years prior to 1997/98 before the next Article IV consultation, which is tentatively scheduled for July 2000, and expeditiously to complete a special audit consistent with international auditing standards of the operations of the Central Directorate of National Savings, which should be published.
"Directors also welcomed the authorities' commitment at the highest level to take additional steps over the medium term to further strengthen data reporting and reconciliation. They urged the authorities to accelerate the implementation of the Pakistan Improvement to Financial Report and Audit project with the World Bank, and to rationalize and streamline government debt and aid management operations under the newly created debt management committee. Fiscal policy management would also be aided by the development of a medium-term fiscal framework and by enhanced fiscal transparency. In this context, Directors welcomed the authorities' participation in the fiscal component of the Report on Observance of Standards and Codes (ROSC), which is expected to be discussed in the context of Pakistan's next Article IV consultation. They noted that the ROSC exercise would provide an opportunity to specify further remedial actions to be included in any future program, and several Directors suggested that the related ROSC report be published. Directors also noted Pakistan's intention to participate in the joint IMF-World Bank Financial Sector Assessment Program, and several Directors emphasized the importance of producing related financial-sector ROSCs.
"In light of the serious nature of the misreporting case, Directors noted the authorities' indication to promptly make a repurchase corresponding to a noncomplying purchase of March 1998 that is subject to misreporting under the General Resources Account (GRA) Guidelines, and to make a voluntarily repurchase by May 31, 2000. In view of the authorities' expression of regret over the misreporting episode, their full cooperation during the data revision process, and their prompt implementation of measures to subsequently strengthen fiscal reporting, Directors felt that the proposed repurchases constituted remedial action that was consistent with practices on misreporting that were in effect at the time the inaccurate fiscal data were provided. Many Directors expressed the hope that, following these actions in response to the data misreporting episode, the authorities could move forward with a bold and wide-ranging reform program designed to achieve a high and sustainable growth path that could be supported by resources from the IMF. In this connection, a mission to Islamabad is envisaged in the near future," Mr. Aninat stated.
IMF EXTERNAL RELATIONS DEPARTMENT