Trade and commerce reliance: IMF asks Pakistan to cut reliance on China

ISLAMABAD: The visiting IMF mission has extended its stay in Pakistan for making more efforts to strike a consensus on the staff-level agreement as both sides so far persisted with their respective differences on ‘immediate measures’ for reducing the revenue-expenditure gap and fixing cash bleeding energy sector. The IMF has also asked Islamabad "to reduce its trade and commerce reliance on Beijing" and look for other international options by signing free trade agreements with other countries too.

The official sources confirmed to The News on Thursday night that both sides were busy in ironing out differences over revenue generation efforts as the FBR wants a further reduction in its revised target of Rs5,238 billion but the IMF desires to see the plan aimed at removing distortions and expanding narrowed tax base on a permanent basis. Without the reform plan, how long the IMF is going to show lenient attitude over FBR’s inabilityto maximize its revenues efforts, one top official quoted the IMF team as saying during their interaction. The IMF still insists that if the need arises, the government must take measures to correct the situation halfway instead of waiting for the worsening of the situation till next fiscal year.

There is another problem for the IMF staff because a couple of months back the Fund’s Executive Board allowed FBR to slash down the target from Rs5.5 trillion to Rs5.238 trillion. This also raises the question of the IMF team's credibility that within a passage of couple of months, their projections related to FBR revenues have further dashed to the ground. The IMF staff finds it hard to defend its position if it agrees with further reduction in the FBR target. On the other hand, if the FBR’s revised target remains intact at Rs 5,238 billion, everyone knows that it is impossible to achieve. So both sides are in a Catch 22 situation and have so far remained unable to find out a solution that gives face-saving to both the IMF and FBR.

According to senior finance ministry sources, the issue of discord between the IMF and financial authorities is the former's insistence to cut down heavily Pakistan reliance on trade and commerce ties with China and contract FTA with other international partners. This is a position Islamabad is not prepared to even consider.

Although, the Ministry of Finance and other officials claimed in their background discussions that there was no ‘deadlock’ and the staff-level agreement would be finalized anytime soon. But when they were asked to share details, they were non-committal saying that the talks were underway, so nothing could be stated with credence.

Secondly, the PTI government is opposed to increase in the electricity and gas tariffs for next 12 to 18 months as PM Imran Khan has asked the relevant ministries for freezing their tariffs for a certain period but the IMF questions that wisdom saying how the cash bleeding losses will be curtailed if there is no cost recovery of energy utilities. “The IMF is asking for a viable alternate plan,” said the sources.

According to the schedule of the IMF team available with The News, the Fund's team was scheduled to hold talks with different ministries, the State Bank of Pakistan and departments from February 3 to 13, 2020 under $6 billion Extended Fund Facility (EFF). There were two scheduled meetings on Thursday from 9am to 12.30 noon and the second meeting at 14.00 hours to 16.00 hours for discussions on Memorandum of Financial and Economic Policies (MEFP), if necessary.

When this scribe asked the IMF’s Resident Chief in Pakistan Teresa Daban Sanchez and inquired whether the Fund mission has extended its stay in Pakistan and if the extension in the stay would be understood to mean that both sides could not finalize the staff-level agreement, the IMF chief replied “There is not planned any interaction with media until the discussions are finalized." This scribe also contacted official spokesman of the Ministry of Finance on Thursday night, who replied that as per the plan, some members of the IMF would visit Karachi today (Friday). He said that some insignificant meetings would be held in SBP and with Sindh government.