Lingering Pak-IMF talks may delay $1bn tranche

ISLAMABAD: Pakistan and the International Monetary Fund (IMF) talks linger on as the two sides so far could not strike a broader agreement on a revised macroeconomic framework for the current financial year.

It might delay in conclusion of the ninth review and release of $1 billion tranche till next calendar year 2023. Top official sources confirmed to ‘The News’ on Monday that talks with the IMF high-ups were virtually held in ongoing month but both the sides could not strike any agreement.

The talks continued for weeks but the two sides could not decide to start policy-level parleys to conclude the pending ninth review within November.

Both Pakistan and IMF sides are tight-lipped as no one is ready to say anything on record but background discussions reveal that the ongoing talks were in limbo mainly because of existing differences over revised macroeconomic/ fiscal framework prepared by the Pakistani side and shared with the IMF for the conclusion of the pending review under $7 billion Extended Fund Facility (EFF).

Now Pakistan will have to work hard to conclude the review by the first week of December, 2022. Christmas and New Year holidays would commence after December 20, so IMF’s Executive Board will meet in January 2023 for approving Pakistan’s next tranche provided both sides reach a consensus within next 10 days.

This correspondent approached both the IMF and Ministry of Finance high-ups inquiring about any exact schedule for conclusion of the pending review. One close aide of Minister for Finance Ishaq Dar stated that “discussions were going on Zoom. Insha Allah soon (the review will be concluded).”

Differences persisted over the revised macroeconomic/ fiscal framework for 2022-23 as the IMF considered it unrealistic and contrary to the ground realities. The government envisaged nominal growth in the range of 25 percent, with two percent real GDP growth and 23 percent inflation on average but the remaining figures did not match with the revised nominal growth numbers.

The government has kept Federal Board of Revenue (FBR)’s annual target of Rs7.47 trillion unchanged. However, the IMF assessed that the FBR might face a shortfall keeping in view compression in imports. Secondly, the FBR figure did not match the nominal growth figures of 25 percent, so if the FBR achieved its target, the tax-to-GDP ratio would further fall. Third, the non-tax revenue target of Rs2 trillion might not be materialised as well.

The IMF noted that the petroleum development levy might not be fully materialised as the government envisaged a target of Rs855 billion before next budget. Now the levy target might be revised downward to Rs500 billion mainly because of the government’s inability to slap Rs50 per liter in diesel and reduction in petroleum products consumption by 21 percent.

Energy sector reforms and inability of the government to legislate changes were also stumbling blocks in striking the consensus on conclusion of the pending review under the EFF arrangement.

The delay in finalising the IMF agreement might compound the economic woes being faced by the country amid dwindling foreign exchange reserves as the reserves held by the State Bank of Pakistan (SBP) stand at $7.8 billion.

The SBP is going to repay $1 billion on the maturity of the Sukuk bond within the ongoing week. The Asian Infrastructure Investment Bank is going to provide a $500 million loan as its board had already granted an approval. The central bank reserves will further fall and will be standing at around over $7 billion within the next couple of weeks.

News Desk adds: A local media outlet quoting sources reported that the IMF has asked Pakistan to reduce expenses before the talks on the ninth review. The Fund has asked the ministry to submit a report of the increase in expenses due to floods in Pakistan for release of the next tranche.

In response, the Finance Ministry assured the IMF of submission of a report in the current month to which the fund has disagreed. In a separate message to another local media outlet, IMF Resident Representative in Pakistan Esther Pérez Ruiz, confirming the virtual engagement with the Pakistani side, said: “As part of the 9th review under the EFF, remote discussions continue between IMF staff and the Pakistani authorities over policies to reprioritise and better target support toward humanitarian and rehabilitation needs, while also accelerating reform efforts to preserve macroeconomic and fiscal sustainability, including with continuing financial support from multilateral and bilateral partners,” Ruiz said.

The government has shared fiscal data, including flood and related expenditures, with the Washington-based lender and an IMF team is expected to visit Islamabad soon, the Finance Ministry said in a statement, reported a British wire service.

Pakistan has been reeling from the impact of floods this year that killed more than 1,700 people, destroyed farmland and infrastructure and exacerbated an economic crisis marked by decades-high inflation and dwindling foreign exchange reserves.

“The IMF understands that the floods have changed the macroeconomic assumptions on which the programme was designed,” the ministry said. “Detailed analysis is being conducted by their team using the data provided.”

Pakistan secured a $6 billion bailout in 2019 that was topped up with another $1 billion earlier this year. The IMF’s board approved the seventh and eight reviews in August, allowing the release of more than $1.1 billion.

The ninth review has been pending since September. The IMF told the news agency last week that finalisation of a recovery plan from the floods was essential to support discussions, along with continued financial support from multilateral and bilateral partners.