Tough prior actions needed for IMF’s $452m third tranche

ISLAMABAD: The government will have to take ‘prior actions’ by placing a viable fiscal adjustment plan, hiking gas and power tariff and ensuring Chinese loans rollover in order to strike a staff level agreement with the IMF.

Now there are only two options available to the government: 1, to take prior actions in next two to three weeks; 2, request the IMF for completion of second and third reviews in May 2020 so that it could take corrective measures in the coming budget 2020-21 after which two tranches would be approved by the IMF’s Executive Board.“Now the ball is in the government’s court so it should take a decision without wasting time on the economic front,” said top official sources.

A top economist told The News on Saturday that the government had lost political capital because people were not ready to buy arguments to increase public utility tariffs and burden them with more taxes by holding the previous rulers responsible. The government also lost its capital in the eyes of the IMF because they reduced the FBR target during the first review so they were not ready to allow a further cut in the FBR target from Rs5,238 billion. “Only a miracle can save this IMF program,” said an official and added that it could only be done by delivering on the economic front immediately.

The staff-level agreement can only avoid the derailment of the IMF program. These prior actions can pave way for striking a consensus on staff-level agreement and then release of next tranche worth $452 million with the approval of the IMF Executive Board.

Top official sources confirmed to The News on Saturday that Pakistan would have to undertake prior actions over next two to three weeks as the staff level agreement in first 10 days of March 2020 could only pave way for signing Memorandum of Financial and Economic Policies (MEFP) and then consideration of Fund’s Executive Board for completion of second review and release of third tranche worth $452 million in April 2020.

“Now fingers are being kept crossed, as the government has a chance to comply with a prior action or satisfy the IMF through a strong viable plan paving way for striking a staff level agreement over the next two to three weeks,” said the official sources. The government had envisaged Rs5,550 billion revenue target that was reduced to Rs5,238 billion. Now the FBR is again asking for a further reduction and fixing it at Rs4,600 billion to Rs4,700 billion. This shortfall will be compensated through non-tax revenues as the increased profits of State Bank of Pakistan ballooned to Rs426 billion in first six months of the current fiscal against Rs63 billion in the same period of the last financial year.

Prime Minister Imran Khan had announced that the power and gas tariff would not be increased but the government will have to pass this burden partially on to the people because it is preparing a new power tariff plan, so it is yet to be seen whether new tariff plan can satisfy the IMF or not. On gas tariff, the proposed increase incorporated some arrears that resulted in an unprecedented hike so the exercise is underway to exclude arrears and then hike the gas tariff. Some Chinese loan rollover also became an issue for finalizing staff-level agreement with the IMF.

When this reporter contacted the IMF Resident Chief in Pakistan Teresa Daban Sanchez, she said, “Work and discussion continue. That happens at times that all the work is not finished in one visit and this is the usual type of message after this type of mission”.