IMF talks to remain a challenge in post no-trust vote scenario

ISLAMABAD: As the country continues to bleed foreign currency reserves at a meteoric rate, the first and the most formidable task for the government, regardless of the outcome of no-confidence motion, is to convince IMF for clubbing 7th and 8th reviews together for the revival of $6 billion Extended Fund Facility.

The incoming economic team will simultaneously have to undertake several pivotal measures on the macroeconomic front and prepare a budget for next fiscal FY2023 in a way that could help bring the IMF round for the same. “The first and foremost challenge for the incoming government will be to withdraw the PM's relief package on petrol, diesel, and electricity,” said top official sources while talking to The News.

“Imposition of petroleum levy by up to Rs30/litre in a gradual manner can be one of the options to put on the table, while keeping GST and Customs Duty at minimum levels.”

Talking to The News, Dr Hafeez Pasha, former finance minister, said Pakistan was fast slipping into the worst macroeconomic crisis, but no one seemed worried about it.

Citing an example of Sri Lanka, he said the country was heading towards a difficult situation on the external account front so there was a need to request the IMF to merge 7th and 8th reviews so that the incoming government could take stock of the situation before finalising the future roadmap.

The government placed landmines through relief and incentives with an estimated cost of Rs1,000 billion, which will have to be withdrawn to run the country’s economy smoothly, keeping in view macroeconomic fundamentals, Pasha added.

Last week, State Bank of Pakistan’s (SBP) dollar reserves slumped $2.915 billion to $12.047 billion. Pakistan also paid back $900 million on account of the Reko Diq settlement last week so the SBP reserves have further decreased by $900 million.

“This decline reflects repayment of external debt, including repayment of a major syndicated loan facility from China. The rollover of this syndicated facility is being processed and is expected shortly” the SBP said in its Thursday’s statement.

This indicates that China did not rollover a commercial loan of $2.5 billion and it was paid back. China has however agreed to process a commercial loan of $2.5 billion that might be provided in the coming few weeks.

Besides, the exchange rate slid further and in the open market the rupee touched Rs185 against dollar as of March 31.

Talking to The News, Esther Perez Ruiz, IMF’s Representative in Pakistan, said after the completion of the sixth review, the IMF staff and Pakistani authorities were further discussing existing policies and new initiatives that would promote economic stability in Pakistan amidst a challenging external environment in the context of the Russia-Ukraine war. “This engagement remains constructive,” Ruiz added. Dr Khaqan Najeeb, former adviser, Ministry of Finance said it was important for Pakistan to complete the ongoing programme with the IMF. “External financing needs swelling to near $32 billion for FY22, a devaluing rupee, and depletion of SBP reserves to $12.05 billion in March 2022 from $18.9 billion in July 2022 requires successful closure of the seventh review, which besides technical issues is overshadowed by the evolving political landscape,” Dr Najeeb said. “Consensus with the IMF is also time-bound as being in an IMF programme requires consultation of the contours of the budget 2023 with the fund. The budget 2023 needs to be prepared considering available financing options and the needed repair of the expenditure side as current expenditure has swelled from Rs4.3 trillion to Rs7.5 trillion in the past three years.”

Burgeoning pensions of the federal government to Rs480 billion and rising mark-up payments near Rs3,073 billion remain unfinished reforms agenda, the economist said.

He added that the revenue reforms covering the progressiveness in personal income tax regime and doing away with concessions needed a serious effort. “Managing inflation especially, ensuring vigilant supply side monitoring of key perishable and non- perishable foods items should be a priority in the coming months,” Dr Najeeb concluded.