News Brief: IMF Executive Board Reviews Pakistan Misreporting, Remedial Steps

IMF News, April 28, 2000

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The Executive Board reviewed data revisions and misreporting by Pakistan and the authorities' commitments to:
- promptly repurchase SDR18.95 million in outstanding debt to the IMF, and
- voluntarily repurchase another SDR 22 million by May 31, 2000.
A mission from the IMF's Fiscal Affairs Department visited Islamabad in January 2000 to assess the magnitude and causes of the discrepancies.
A mission to Islamabad is envisaged in the near future to follow up.

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.
- The deficit for 1998/99 was raised by 1.4 percent of GDP to 5.9 percent of GDP.
Discrepancies arose principally in the domestic nonbank financing data where sales of National Savings Schemes (NSS) instruments had been erroneously recorded in the fiscal reports.
External and domestic bank financing data also required revision.
Corresponding adjustments to expenditure data completed so far for 1998/99 were mainly to:
- interest payments—corresponding to the higher-than-previously reported domestic nonbank debt, and
- defense spending.
Some unbudgeted spending was identified.

Directors noted the misreporting had in part resulted from:
- negligence in compiling and reconciling the fiscal reports for 1997/98 and 1998/99, and
- weaknesses in fiscal accounting, reporting, and audit procedures, including the absence of systematic data reconciliation processes and lack of a mechanism to fully involve the Accountant General Pakistan Revenue (AGPR) in the preparation of fiscal reports.
Directors emphasized that accurate reporting is crucial to maintain trust between the IMF and its members.

Directors expressed serious concern that the erroneous data had:
- misled IMF staff and the Executive Board about economic performance,
- prevented formulation and implementation of timely corrective measures, and
- resulted in the design of an adjustment program that was partly based on inaccurate information.
They noted that the provision of inaccurate data had allowed Pakistan to make substantial purchases under the extended arrangement and the Compensatory and Contingency Financing Facility, and under the Poverty Reduction and Growth Facility, that otherwise may not have been available.
Directors commended the current authorities for discovering the discrepancies themselves and for their prompt and full cooperation with IMF staff in the data revision process.

Steps being taken with IMF technical assistance to strengthen fiscal reporting:
- 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.
Directors felt credibility would be enhanced if the AGPR were required to verify the accuracy of fiscal reports.
Directors urged the authorities to:
- finalize the data reconciliation process for the years prior to 1997/98 before the next Article IV consultation, tentatively scheduled for July 2000,
- expeditiously complete a special audit consistent with international auditing standards of the operations of the Central Directorate of National Savings, which should be published,
- accelerate implementation of the Pakistan Improvement to Financial Report and Audit project with the World Bank, and
- rationalize and streamline government debt and aid management operations under the newly created debt management committee.
Further recommended reforms to aid fiscal policy management:
- development of a medium-term fiscal framework, and
- enhanced fiscal transparency.
Directors welcomed Pakistan's participation in the fiscal component of the Report on Observance of Standards and Codes (ROSC) and in the joint IMF-World Bank Financial Sector Assessment Program, and noted the ROSC would provide an opportunity to specify further remedial actions; several Directors suggested the related ROSC report be published.

In light of the authorities' expression of regret, full cooperation, and prompt implementation of measures to strengthen fiscal reporting, Directors felt the proposed repurchases constituted remedial action consistent with practices on misreporting in effect at the time the inaccurate fiscal data were provided.
Many Directors expressed the hope that, following these actions, the authorities could move forward with a bold and wide-ranging reform program to achieve a high and sustainable growth path that could be supported by resources from the IMF.

News Brief: IMF Executive Board Reviews Pakistan Misreporting, Remedial Steps — April 28, 2000