Pakistan seeks to boost ties with US, China amid IMF deal hope

ISLAMABAD: Pakistan and the International Monetary Fund (IMF) on Tuesday struck a consensus on the Memorandum of Economic and Financial Policies (MEFP), making the early release of $1.1 billion last tranche of the Standby Arrangement (SBA) programme a strong likelihood.

A formal announcement from the IMF is expected today (Wednesday). Pakistan is also interested in a new four-year programme from the IMF, in which the loan value may be seven and a half billion dollars. Under the broader consensus, Pakistan and the IMF agreed that the retailers scheme would be announced during the current fiscal. The registration for the simplified retailers scheme will kick-start after seeking a formal approval from the minister for finance but tax collection from retailers will commence in the next fiscal year 2024-25, starting from July 1, 2024.

Just ahead of concluding parleys for striking a staff-level agreement with the IMF, Minister for Finance Muhammad Aurangzeb held separate meetings with the US and Chinese ambassadors in a bid to secure Washington’s support for the Fund programme and running the China-Pakistan Economic Corridor (CPEC) projects simultaneously. The sources pointed out that the Pakistani authorities were facing issues as the IMF was putting conditions, creating stumbling blocks in the way of running CPEC projects with ease.

For instance, the Chinese independent power producers (IPPs) are struggling to secure their outstanding dues on account of circular debt that had accumulated to the tune of Rs500 billion. The government has allocated just Rs48 billion, and under the IMF programme, there is a ban on supplementary grants. Now there are two options, either to wait for a cushion after the expiry of IMF’s SBA programme or arrange financing from Chinese banks and then provide money to the Chinese IPPs.

The circular debt of the energy sector has become a major problematic area, including the non-resolution of AJK tariff due to which the circular debt accumulated to the tune of Rs58 billion. The total circular debt stood at Rs2.3 trillion till June 2023 and it further went up by Rs378 billion till the end of December 2023.

According to an official statement issued by the Ministry of Finance, US Ambassador Donald Blome paid a courtesy visit to Minister Aurangzeb to discuss important matters related to bilateral cooperation and mutual interests between Pakistan and the United States. Blome extended felicitations to Aurangzeb upon his appointment as the minister for finance and revenue and conveyed confidence towards further strengthening of economic ties between the two countries. The minister also warmly welcomed the ambassador and underscored the significance of Pakistan-US bilateral relations, highlighting their importance at political, economic, and security levels.

Aurangzeb shared that the new government is fully prepared to tackle the economic challenges and is determined to bring about macroeconomic stability in the country. He reiterated the government’s commitment to completing the ongoing IMF programme and continuing the economic reform process initiated under the Extended Fund Facility (EFF) 2019 and SBA 2023, with a focus on achieving fiscal and debt sustainability, social protection and rebuilding foreign exchange reserves.

Highlighting the priority areas for reforms, he outlined the government’s foremost priority of bringing reforms in the Federal Board of Revenue (FBR) to prevent revenue leakages through end-to-end digitisation, enhancing the State-Owned Enterprises (SOEs) reforms, strengthening social protection measures, improving public financial management, implementing energy sector reforms, removing distortionary subsidies and fostering private sector-led economic growth. Recognising the US as one of Pakistan’s largest trading partners and a significant source of foreign direct investment, Aurangzeb expressed appreciation for the economic ties between the two nations.

Ambassador Blome congratulated the government on the positive steps taken so far that resulted in visibly positive signs in the economy and hoped that it would help further stabilise the economy. Concluding the meeting, both sides acknowledged the critical nature of the relationship between Pakistan and the US and expressed the desire to continue enhancing bilateral relations between the two countries.

Meanwhile, in a short press release, the US Embassy said that Ambassador Blome met Minister Aurangzeb to discuss further US cooperation and support for Pakistan’s efforts to meet its reform targets, including improvement of the country’s tax administration and investment climate. Ambassador Blome noted the US government’s support for Pakistan’s work with the IMF to complete its current SBA. He underscored his commitment to expanding further US-Pakistan economic cooperation in areas of mutual interest.

In a separate meeting, Ambassador of China Jiang Zaidong called on the minister for finance to discuss key matters about economic cooperation and bilateral relations between Pakistan and China. Zaidong also felicitated Aurangzeb upon his appointment as the federal minister for finance and revenue and expressed confidence towards further strengthening of economic ties between the two countries.

The minister expressed gratitude towards the Chinese leadership for their invaluable support to Pakistan in various sectors, particularly highlighting the rollover of safe deposits and the refinancing of commercial loans, which have significantly contributed to Pakistan’s economic stability. He further emphasised the paramount importance of CPEC in Pakistan’s growth strategy and overall economic recovery. Both sides agreed to advance their collaboration in various sectors, including industrial zones, agriculture, mineral and mining as well as renewable energy. It was discussed that the next phase of CPEC would focus on the monetisation of gains made during the first phase.

Concluding the meeting, the two sides reiterated the desire to collaborate closely to further deepen and enhance the economic relationship between the two countries, reflecting the strong bonds of friendship and cooperation that exist between Pakistan and China.

Meanwhile, local media reported that Minister of Finance Aurangzeb would visit the United States next month. He would stay there from April 15 to April 20. He would lead the Pakistani delegation at the annual ministerial meeting of the IMF and World Bank scheduled for April 17 to April 19. The State Bank of Pakistan governor, FBR chairman and his economic team would be accompanying the minister.