Breakthrough as IMF to give another $2bn

ISLAMABAD: Minister for Finance Miftah Ismail said on Sunday that the International Monetary Fund (IMF) has agreed to send its mission to Pakistan in mid-May 2022 for continuation of its Extended Fund Facility (EFF) programme. He said at a press conference in Washington that the Fund had agreed to extend the programme for a year.

A senior finance ministry official told The News in Islamabad that the Fund would jack up its $6bn programme to $8bn. Meanwhile, Nathan Porter, IMF Mission Chief for Pakistan, said in a statement issued late on Sunday night that "we agreed that prompt action is needed to reverse the unfunded subsidies" that slowed discussions for the 7th Review.

Addressing a press conference in Washington, Federal Minister for Finance and Revenue, Miftah Ismail said that the IMF had agreed to send its mission to Pakistan in the middle of May 2022 for continuation of Extended Fund Facility programme.

The federal minister said that he and his team had very good discussion with the fund, the World Bank and IFC.

He said when the IMF mission arrives in Pakistan, the government would try to have expedited staff level agreement with it. When an agreement is reached, we would look forward to receiving another tranche under the EFF, he said adding that the fund had also been requested, which it agreed, to extend this program for another year. However, he added these details would be sorted out when the fund mission reaches Pakistan.

He said the IMF had also been requested to enhance the funding available to Pakistan from $6 billion to more. He said the cut in development expenditures would not have effect on ongoing projects saying that the previous government had allocated Rs900 billion for the program which was then cut to Rs700 billion while so far only Rs450 billion were utilized.

Miftah said the incumbent government would fulfill all sovereign commitments made by the previous governments. He said the commitments were not done by Imran Khan as an individual but these were made by the Government of Pakistan. We are responsible for commitments made with the IMF, the loans taken by the previous government and the China Pakistan Economic Corridor commitment. We are not stepping back from the commitment, he resolved. He said Pakistan had never defaulted in the last 70 years and will not default in future too. He however added that there had been excessive budget deficits, which led to increase in debts. He said the incumbent government would try its best to reduce debts by enhancing overall GDP, adding that if national income increases and debts were not increasing at that pace, it would definitely reduce the debt burden.

To a question, he said, the ‘Langar khanas’ were run by Sailani group in previous government's term and it would be facilitated to continue the job. Likewise, he said, the social protection programmes, which he said were launched before the PTI government, would continue.

To a question, he said that Pakistan cannot afford subsidy on petroleum products as it was given to all people irrespective of their incomes. Secondly, the national exchequer does not allow to continue this subsidy. To another question on budget, the minister assured that when the incumbent government leaves the office, it would leave reserves over the existing level of $10.8 billion, with more GDP growth over existing 4 percent and would definitely reduce inflation.

He said that the coalition government had the support of people and had majority in the parliament. The News has learnt the IMF has agreed to Islamabad's request for extending the ongoing Extended Fund Facility (EFF) program by a year and may provide an additional $3-$4 billion to Pakistan, which will be determined keeping in view the exact quota available to Pakistan with the Fund. The Fund decided this after Pakistan had made a formal request to it.

The IMF will ascertain financing requirements for a one-year period and will work out a time-frame for holding three to four additional reviews. The Shehbaz Sharif-led government is expected to remain in power for one-year period, so this arrangement for requesting an extension in the IMF program has been floated to muster up dollar inflows. A top official disclosed to The News that the IMF would re-work on the 7th Review as due to delays everything got changed on the macroeconomic front. The pending 7th Review will most likely remain stand alone, he added. To another question about the exact increased size of the amount under the EFF, he replied that it would be discussed in future meetings.Pakistan’s high-powered delegation led by Minister for Finance and Revenue Miftah Ismail has been currently visiting Washington for attending the annual meeting of IMF/World Bank and on the sidelines, they held a meeting with top officials of the IMF, including its Deputy Managing Director for reviving the existing stalled $6 billion EFF program.

One top official, who is a part of the official entourage of the Pakistani side, disclosed to The News in background discussions that Pakistan and the IMF had struck a consensus on five key points for reviving the existing IMF program, which got stalled after February 2022 mainly because of the deviation committed by the last PTI government.

Now Pakistan and the IMF have agreed they will start technical level talks this week and the IMF will send a mission to Pakistan in mid-May to conclude a staff-level agreement under EFF program. Second, the IMF wants the removal of subsidies on fuel/energy as early as possible. Third, the IMF will look at the actual numbers in FY22 and see how much the numbers have “deviated” from the targets agreed upon with the Fund from last December 2021. The IMF wants to minimise the deviation and try to make up for some of the subsidies and deviations from the original targets. Fourth, the IMF wants to scrutinise the overall budget strategy for the next fiscal year 2022-23. Fifth, the IMF has agreed in principle to extend the program for a year upon Pakistan’s request and enhance the amount. But its exact modalities need to be worked out.

This scribe contacted top officials who had negotiated with the IMF in the past. They were of the view that the IMF has put Pakistan into a "wait and see" policy. Although, the IMF agreed to send its review mission by mid of the next month, it will not end the prevailing "uncertainty" on the economic horizon of the country. It will be the best option for Pakistan to strike the staff-level agreement on the pending 7th Review through withdrawal of fuel subsidies. The staff-level agreement on the Memorandum of Financial and Economic Policies (MEFP) will get released $960 million tranche with the approval of IMF’s Executive Board.

Now the IMF’s upcoming mission will determine the exact deviations committed by the Pakistani authorities from the agreed targets and benchmarks and the cost and actions required for rectifying all distortions that surfaced on the economic front.The yawning twin deficits, budget deficit and current account deficit, will require fresh measures on both the fiscal and monetary fronts to suppress demands in order to avoid an eruption of the balance of payment crisis over the short to medium term.

Despite holding talks for the last few months for completion of the pending 7th Review, the IMF has never shared the MEFP document with the Pakistani authorities. Now they will re-write MEFP after holding parleys with Pakistan whereby prior actions will be incorporated as major conditions for approval through the coming budget 2022-23. After approval of the budget from the Parliament, the next tranche will be released and the IMF program will be back on track.

In a related development, Nathan Porter, IMF Mission Chief for Pakistan, issued the following statement:"We had very productive meetings with the Finance Minister of Pakistan Miftah Ismail. We discussed Pakistan’s economic developments and policies under the Extended Fund Facility (EFF) program. “We agreed that prompt action is needed to reverse the unfunded subsidies.

The issue of subsidy have slowed discussions for the 7th review.” Based on the constructive discussions with the authorities in Washington, the IMF expects to field a mission to Pakistan in May to resume discussions over policies for completing the 7th EFF review. The authorities have also requested the IMF to extend the EFF arrangement through June 2023 as a signal of their commitment to address existing challenges and achieve the program objectives."