Talks with the IMF

With a delegation from the International Monetary Fund (IMF) in Islamabad, we can expect some progress on the release of the third tranche of payment to Pakistan. It will be a long and cumbersome process spanning nearly ten days till Feb 13. The review delegation is expected to issue its report at the end of the visit. Though it is a quarterly review of Pakistan economy, it will entail a detailed review of the performance of various departments and ministries, especially looking into tax reform efforts and the condition of the energy sector. The second quarter of the current fiscal year has been a mixed bag on the economic front, and if the IMF looks at it leniently, the road appears to be paved for the release of the third tranche worth $450 million. We may recall that Pakistan has so far received $1.44 billion from the IMF in the two tranches under the negotiated programme amounting to six billion dollars.

Since the period under review will cover the country’s economic performance from October to December 2019, an important focus will be on the level of autonomy the State Bank of Pakistan has been granted by the government. In the past, the Bank’s autonomy has remained a contentious issue as most governments promised to allow the State Bank to work fairly independently, but once the IMF tranches would start coming, the commitment to this autonomy used to wane.

The recently amended Nepra Act is also likely to come under discussion. The Nepra Act was approved by the Economic Coordination Committee (ECC) in its last meeting in January to help the government recover losses from power consumers. The Act has enabled the government to impose new surcharges. The losses in the energy sector have been one of the primary concerns of the IMF, as they are directly related to the mounting circular debt. The IMF had recommended that Pakistan generate more revenue from this sector and address the circular debt. The IMF benchmarks had even suggested notification of quarterly tariffs that should be determined by Nepra. As Pakistan has been able to control the budget and current account deficits, and has also increased tax collection as claimed by the government despite problems with the FBR, the third tranche will facilitate further economic recovery. Let’s hope that the review is concluded smoothly; that will be good news not only for our economic managers but also for the general health of the economy that has been on the ventilator for the past 18 months.