Pakistan, IMF fail to finalise MEFP

ISLAMABAD: Pakistan and the IMF staff could not finalise the Memorandum of Economic and Financial Policies (MEFP) for completion of the 6th Review under the $6 billion Extended Fund Facility (EFF).

The government is really in a Catch-22 situation as with the IMF or without the IMF programme, there are risks attached to every scenario. The State Bank of Pakistan’s foreign currency reserves decreased by $1.6 billion in the last two weeks as Pakistan had paid $1 billion on maturity of international Sukuk Bond.

On the other hand, inflation is rising as the Sensitive Price Index (SPI) stood at 14.5 percent this week as it increased by 1.4 percent in the last one-week period compared to the last week. The adjustments made on POL and electricity prices as well as devaluation of rupee against dollar jumped up the SPI by 1.4 percent in one-week period.

The devaluation of rupee has played havoc with the economy, making lives of fixed and low-income groups really miserable. There is another danger that inflation may further go up as the Wholesale Price Index (WPI) stood at 19.6 percent for September 2021 month-on-month basis, so when it would translate into retail stage, it might hike the CPI based inflation with certain time lag.

Adviser to PM on Finance and Revenues Shaukat Tarin has left Washington for visiting Saudi Arabia. He will become part of the official entourage of Prime Minister Imran Khan, who is also scheduled to visit the Kingdom of Saudi Arabia.

When contacted, IMF Resident Chief in Pakistan Teresa Daban Sanchez in her brief reply on Friday stated, “Still working on it”. Official sources told The News that now the ball was in the court of the IMF, so let’s see how the Fund staff will decide to proceed further. But the secretary Finance was still in Washington, D.C, on Friday till the filing of this report.

When inquired why there was a deadlock despite claims made by Pakistan’s economic team that “they were very close” to the agreement, the sources said that in the aftermath of the last budget for 2021-22 and increased international prices, all macroeconomic targets became irrelevant, so massive adjustments were required on fiscal, monetary and exchange rate fronts. At the twilight of tenure of the incumbent government when one and a half years are left till completion of five-year period, the government found it difficult to make massive adjustments on all economic fronts. The IMF wants progress on the privatization front in order to sell out loss-making PIA and Pakistan Steel Mills. The Fund is also asking for making power sector viable by moving ahead with privatisation of DISCOs.

Without the IMF program, if the foreign currency reserves started depleting, it would make difficult to control dollarization of economy. The economists were amazed over the rising POL prices, which had crossed $84 per barrel, so the inflationary pressures were bound to further hike. Now the PTI led government is making plans to announce massive subsidy program but how it will be financed is not yet known.