Sunday June 16, 2024

IMF instructs Pakistan to ‘strictly’ adhere to financial discipline

Ishaq Dar briefs IMF mission on fiscal and economic reforms; Fund agrees on relief for poor through Benazir Income Support Programme

By Ashraf Malkham & Business Desk
January 31, 2023
Minister for Finance and Revenue Senator Ishaq Dar holds a meeting with the International Monetary Fund review mission led by Nathan Porter at Finance Division on January 31, 2023. — Twitter/@FinMinistryPak
Minister for Finance and Revenue Senator Ishaq Dar holds a meeting with the International Monetary Fund review mission led by Nathan Porter at Finance Division on January 31, 2023. — Twitter/@FinMinistryPak

ISLAMABAD: The International Monetary Fund (IMF) Tuesday stressed on “strict adherence” to financial discipline in its talks with Pakistan as the two sides began technical-level discussions for the revival of the loan facility stalled for months.

During the first session today, the IMF’s review mission, headed by Nathan Porter, identified the budget deficit and slippages, reiterating its strict stance on implementing the conditions laid forth by the lender.

Federal Minister for Finance and Revenue Ishaq Dar is leading the Pakistani side as the cash-strapped nation launches renewed efforts to complete the pending ninth review under the $7 billion Extended Fund Facility (EFF).

Analysts have termed the technical level talks the "toughest" ever as the Fund has refused to give any leniency in its conditions set for the revival of the loan facility.

Pakistan is gripped by a major economic crisis, with the rupee plummeting, inflation soaring and energy in short supply. The government of Prime Minister Shehbaz Sharif, fearful of backlash ahead of general elections, resisted tax hikes and subsidy curtailment as demanded by the IMF.

But in recent days, with the prospect of national bankruptcy looming and no friendly countries willing to offer bailouts, Islamabad agreed to swallow the bitter pill.

The government loosened controls on the rupee to rein in a rampant black market in US dollars, a step that caused the currency to plunge to a record low. A sudden increase in prices of petroleum products is also a result of the IMF conditions.

The two sides, on the first day of the technical talks, reviewed the economic situation of Pakistan and the ninth review of the bailout programme — which is pending since September.

According to information available with Geo News, the mission review did not raise an objection to Pakistan’s desire to provide subsidies to the low-income segment of the country — which is reeling with rising inflation and aftershocks of the devastations caused by the cataclysmic floods that affected 33 million people.

The Fund’s mission also agreed with Islamabad’s request to continue providing relief under the Benazir Income Support Programme (BISP).

FinMin Dar also briefed the mission on fiscal and economic reforms and measures being taken by the government in different sectors including bridging the fiscal gap, exchange rate stability and in the energy sector for the betterment of the economy, the statement released by the Ministry of Finance read.

He also apprised the delegation that reforms are being introduced in the power sector and a high-level committee has been formed for devising modalities to offset the menace of circular debt in the gas sector. 

Sources told Geo News that the Fund insisted Pakistan fulfil promises made by the coalition government in its federal budget for the fiscal year 2022-23, which include:

  • Budget deficit should be maintained at 4.9%.
  • Primary deficit should clock in at 0.2% of the GDP.
  • Rs1,100 billion subsidy exemption for export sector should be removed.
  • FBR’s tax collection target of Rs7,470 billion should be met.
  • Circular debt should be reduced substantially.
  • Rs855 billion collection target from petroleum levy should be met.
  • Performance of state owned entities should be improved to reduce their losses.
  • Privatisation programme should be implemented.

The sources added that Pakistan promised the Fund that it will fulfil all the conditions, however, requested the Washington-based lender to grant more time to implement the promises they had made.

The IMF mission chief expressed his confidence that the Pakistan government will meet the IMF requirements for the completion of the ninth review and hoped that Pakistan would continue towards its progress on the reforms in various sectors and complete the IMF programme within time effectively. 

"The IMF and Pakistan will be working together on fiscal reforms," he said. 

IMF resident representative Esther Perez Ruiz, Minister of State for Finance and Revenue Dr Aisha Ghous Pasha, SAPM on Finance Tariq Bajwa, SAPM on Revenue Tariq Mehmood Pasha, State Bank of Pakistan Governor Jamil Ahmed, secretary finance, chairman FBR, members of IMF delegation and senior officers from Finance Division also attended the meeting.

IMF is asking govt to fill Rs600bn gap on fiscal front

The Washington-based lender is suggesting the toughest prescriptions on all fronts of the economy at a time when the foreign exchange reserves are persistently on the decline and touched the lowest ebb of $3.6 billion.

Although, the government had already implemented two major conditions including allowing adjustment of the rupee against the dollar and hiking record levels of a surge in petroleum prices ahead of the talks.

The IMF is asking the government to fill the yawning gap of Rs600 billion on the fiscal front through additional taxation measures or cutting down on expenditures in order to restrict the budget deficit and primary deficit within the desired limits.

Differences persisted over the exact fiscal gap and both sides will hold parleys to evolve consensus over the exact estimates for taking additional taxation measures through the upcoming mini-budget.

Pakistan and the IMF will hold technical-level talks from today to Friday and then the policy-level talks will commence finalising the Memorandum of Financial and Economic Policies (MEFP) document.

The IMF further demanded an increase in electricity tariff within the range of Rs12.50 per unit as Islamabad seemed to agree to hike the electricity tariff of Rs7.50 per unit in a staggered manner.

The government may be agreed to withdraw the un-targeted power sector subsidies of the electricity and gas sector to powerful groups during the upcoming parleys with the IMF. The gas tariff will also be hiked in the range of 74% for consumers.

“We will have to swallow bitter pills because the gap widened so much that now the economy cannot run with the approach of status quo. The country’s middle class will have to face the burden.

"We have made a plan to protect vulnerable and poor segments of the society while implementing the IMF conditions” top official sources stated while talking to a select group of reporters on Monday night.

The senior officials in a background discussion stated that the government wanted to insulate the poorest of the poor from swallowing bitter pills as the government would make all-out efforts to focus on two areas including introducing reforms and protecting poor and vulnerable segments from arising inflationary pressures.

The official said that Finance Minister Dar was trying to secure $4-5 billion from bilateral friends for engaging the IMF with the point of strength but it could not be materialised so there was no other option but to make renewed efforts to revive the stalled IMF programme.

The Federal Board of Revenue’s (FBR) high-ups are estimating that the recent devaluation of the exchange rate will help tax authorities jack up its revenue collection by Rs100 billion in the remaining period of the current fiscal year.

While referring to recommendations given by the National Austerity Committee to Prime Minister Shehbaz Sharif, the committee finalised recommendations to suggest all ministries including the Ministry of Defence slash expenditures by 15%.

The committee asks for surrendering all plots of land obtained by influential segments —keeping no more than one. In all, the committee’s recommendations, if implemented, could save Rs600-700 billion per annum. But there are big ifs and buts that who is going to implement these bold decisions which are now necessary to undertake for averting the crisis.

— Additional input from AFP