Talks between Pakistan and the IMF are stalling as the two sides have so far been unable to reach a broader agreement on a revised macroeconomic framework for the current financial year.
ISLAMABAD: Talks between Pakistan and the International Monetary Fund (IMF) are ongoing as the two sides have so far been unable to reach a broader agreement on a revised macroeconomic framework for the current financial year.
It could delay the conclusion of the ninth review and the release of the $1 billion tranche until the next calendar year, 2023. Talks continued for weeks, but the two sides could not decide to start negotiations at the political level to complete the ninth ongoing review in November.
The Pakistani side and the IMF are tight-lipped, as no one is ready to say anything. Still, background discussions indicate that the ongoing talks have been in limbo mainly due to existing differences over the revised macroeconomic/fiscal framework prepared by the Pakistani side and shared with the International Monetary Fund for the closure of ongoing review under the $7 billion Enhanced Fund (EFF).
Pakistan must work hard to complete the review by the first week of December 2022. The Christmas and New Year holidays would start after December 20, so the IMF Executive Board will meet in January 2023 to approve Pakistan’s next tranche, provided both sides reach a consensus within ten days.
The correspondent turned to senior officials of the IMF and the Ministry of Finance to ask about the exact timetable for the closure of the ongoing review. One close aide to Finance Minister Ishaq Dar said, “there are discussions about Zoom. Insha Allah, soon (study will be closed).
Differences persisted over the revised macroeconomic/fiscal framework for 2022-23 as the IMF considered it unrealistic and inconsistent with ground realities. The government had projected nominal growth in the 25 percent range, with a GDP growth of 2 percent and average inflation of 23 percent. Still, the remaining figures fell short of the revised nominal growth figures.
The government left unchanged the Federal Board of Revenue’s (FBR) annual target of Rs 7.47 trillion. However, the IMF opined that the FBR could face a shortfall given the compression of imports. Second, the FBR figure did not match the 25 percent nominal growth figures, so if the FBR achieves its target, the tax-to-GDP ratio will fall further. Third, the non-tax revenue target of Rs 2 trillion may also not be met.
The IMF noted that the oil development tax might not be fully realized as the government had projected a target of Rs 855 billion before the next budget. Now the levy target may be revised downwards to Rs 500 billion, mainly due to the inability of the government to give Rs 50 per liter of diesel and a 21 percent reduction in the consumption of petroleum products.
Energy sector reforms and the government’s failure to enact changes have also been stumbling blocks in reaching a consensus to conclude the pending review under the EFF arrangement.
A delay in finalizing the deal with the IMF could add to the economic woes the country is facing amid dwindling foreign exchange reserves, as reserves held by the State Bank of Pakistan (SBP) is at $7.8 billion.
The SBP is to repay USD 1 billion at the maturity of the Sukuk bond during the current week. The Asian Infrastructure Investment Bank will provide a $500 million loan as its board has already approved. The central bank’s reserves will continue to decline, costing around $7 billion over the next few weeks.
The News Desk adds: Local media citing sources reported that the IMF had asked Pakistan to reduce spending ahead of talks on the ninth review. The fund has asked the ministry to submit a reported increase in expenditure due to floods in Pakistan for the release of the next tranche.
In response, the Ministry of Finance assured the IMF that it would present a report in the current month, which the fund disagreed with. In a message to another local media channel, the IMF Resident Representative in Pakistan, Esther Pérez Ruiz, who confirmed the virtual engagement with the Pakistani side, said: “Remote discussions between IMF staff and Pakistan continue for the 9th review within the EFF. Authorities over policies that will re-prioritize and better target support to humanitarian and rehabilitation needs while accelerating reform efforts to maintain macroeconomic and fiscal sustainability, including continued financial support from multilateral and bilateral partners,” said Ruiz.
The government has shared fiscal data with the Washington-based lender, including floods and related spending. An IMF team is expected to visit Islamabad soon, the Treasury said in a statement, the British news site reported.
Pakistan is reeling from this year’s floods, which have killed more than 1,700 people, destroyed farmland and infrastructure, and worsened an economic crisis marked by decades of high inflation and dwindling foreign reserves.
“The IMF knows that the floods have transformed the macroeconomic outlooks on which the program was planned,” the ministry said.
Pakistan secured a $6 billion bailout package in 2019, which was increased by another $1 billion earlier this year. The IMF’s board approved the seventh and eighth assessments in August, releasing more than $1.1 billion. The ninth inspection has been pending since September. The IMF told the news agency last week that finalizing the flood recovery plan was essential to support the discussions and continued financial support from multilateral and bilateral partners.
