IMF leaves Pakistan hanging as mission heads back without staff-level agreement

ISLAMABAD: The much-touted talks between the International Monetary Fund (IMF) and Pakistan ended without a staff-level agreement (SLA) to revive the stalled bailout package. However, a statement by the IMF said "considerable progress" was made during the mission's visit to the country.

The visiting IMF mission concluded its review parleys in 10 days and left Islamabad Friday to return back to headquarters in Washington DC without signing of the SLA.

The IMF shared a draft Memorandum of Economic and Financial Policies (MEFP) with Pakistani authorities and evolved a broader consensus over actions/ prior actions, Finance Secretary Hamid Yaqoob told journalists, who waited for long hours at Q Block (Ministry of Finance) get the version of Minister for Finance Ishaq Dar on the latest parleys with the IMF, Thursday night.

What did the IMF say?

IMF mission chief Nathan Porter said that “virtual discussions” will continue between the two sides in the coming days to finalise the “implementation details” of the policies.

In a brief statement after the IMF mission's conclusion of its Pakistan visit, Porter said timely and decisive implementation of policy measures along with resolute financial support from official partners are critical for Pakistan to successfully regain macroeconomic stability and advance its sustainable development.

The statement welcomed Prime Minister Shehbaz Sharif’s commitment to implement policies that are required to “safeguard macroeconomic stability”.

He also thanked the authorities for taking part in “constructive discussions”.

Porter noted that “considerable progress” was made during the talks with Pakistani officials on policy measures to address domestic and external imbalances.

The IMF mission chief highlighted that the “key priorities include strengthening the fiscal position with permanent revenue measures and reduction in untargeted subsidies, while scaling up social protection to help the most vulnerable and those affected by the floods; allowing the exchange rate to be market determined to gradually eliminate the foreign exchange shortage; and enhancing energy provision by preventing further accumulation of circular debt and ensuring the viability of the energy sector”.

'Deviations occurred during parleys'

Some deviations have occurred during the course of parleys contrary to the original mandate obtained by the IMF staff from Washington, he said, adding that the Fund staff requires permission to sign the SLA subsequently in the coming week.

Pakistani authorities delayed implementations of prior actions. Secondly, the IMF remained engaged in securing confirmation from all avenues of external financing. So the much-awaited SLA was further delayed amid dwindling foreign exchange reserves held by the State Bank of Pakistan that have touched $2.9 billion.

The prior actions included slapping additional taxes through a mini-budget, taking steps to erase circular debt for the energy sector including hiking of electricity and gas tariffs, and increasing the policy rate to tighten monetary stance.

The finance secretary said that the government shared its plan to secure external financing from all avenues and the IMF did not raise any objections to the estimates.

Dar left Q Block Thursday evening making a commitment with journalists outside the Ministry of Finance that he would return back and would talk about the “good news” on talks with the IMF after holding the final round of parleys with the Fund mission held at PM House.

Prime Minister Shehbaz Sharif also held a virtual meeting with the IMF mission and assured them of full implementation of all prior actions agreed upon with the Fund mission. The IMF programme has been in a stalled mode for last three months as both sides could not make progress despite remaining engaged from last November, 2022.

The Ministry of Finance informed journalists that they would have to wait till 10pm and Ishaq Dar would return back from the PM House to share information with the media.

Later, the finance secretary established telephonic contact with journalists at 11pm and informed them that Pakistan and the IMF evolved a broader consensus on actions and prior actions, but the staff level agreement could not be struck.

Pakistan's delay in implementation of prior actions

Sources said that Pakistani authorities delayed implementations on prior actions due to which the draft MEFP could not be shared on time.

It should have been handed over to Pakistani authorities three days prior to the conclusion of parleys so that the Pakistani side could give careful reading of the document with full understanding, The News reported. If this course would have been adopted, the prior actions could have been implemented and shared with the fiscal affairs department (FAD) of the IMF based in Washington.

After seeking IMF headquarters endorsements from Washington, the SLA could have been signed on the conclusion of talks on Friday. Now the Pakistan authorities have failed to sign the SLA, so the prevailing uncertainty will continue hovering over the economic horizon of the country.