Pakistan squirms at IMF's demand to cut salaries of govt employees; cites inflation

Pakistan has rejected the demand made by the International Monetary Fund (IMF) to freeze the salaries of government employees. According to Pakistani channel Dunya News, sources close to the matter informed that IMF urged Pakistan for spending cuts in the next budget during talks via video conferencing. However, Islamabad said that it cannot cut the salaries of government employees as it is necessary to protect government employees and pensioners from inflation

The Pakistan government will unveil its budget on June 12 and is struggling to strike a balance between continuing with the fiscal consolidation and providing momentum to economic growth. Pakistan is finding it hard to concede to the demands but the IMF is insisting that the country should continue to follow the fiscal consolidation path due to the high and unsustainable public debt, the Express Tribune reported on Friday.

Owing to the prevailing tight fiscal situation, growing public debt and Pakistan's decision to seek debt relief from G-20 countries, the International Monetary Fund has asked Islamabad to freeze salaries of government employees, the daily reported, citing sources in the Ministry of Finance.

Nonetheless, the government 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 the purchase of vehicles. Pakistan owes a considerable amount to the IMF, which has routinely bailed it out, and hence, is required to comply with the terms agreed to while aid is being given out.

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 Rs 184 billion or 0.4% of gross domestic product (GDP).