Pakistan and the International Monetary Fund (IMF) remained unsuccessful in reaching a staff-level agreement yet again owing to point of conflicts over the macroeconomic framework as well as the aggravating uncertainty over the future economic outlook.
The new round of talks commenced on October 4 in Islamabad and ended on October 15 in Washington. This is the second time both the parties have held a round of talks pertaining to the release of the $1 billion loan tranche, however, receiving a good economic health certificate remained inconclusive. The first round of talks was held in June but they had been unsuccessful as well.
The talks failed even though Pakistan has already implemented a prior condition of raising electricity and petroleum products prices. It must be noted that both sides have shown resolve to remain engaged.
Finance Minister Shaukat Tarin whose tenure expired on Friday attempted to conclude the talks on a positive note and met with IMF managing director Christalina Georgieva as well as the US Assistant Secretary of State for South and Central Asia Donald Lu. But both meetings failed to bear fruit.
The outgoing resident representative of the IMF Teresa Dabán Sanchez said, “The IMF team remains engaged with our Pakistani counterparts on moving forward our work agenda and we are looking forward to our continued discussions with the Pakistani authorities on the set of policies and reforms that could form the basis for the completion of the 6th review under the EFF [Extended Fund Facility]”.
IMF and Pakistan have been unable to reach an agreement upon the Memorandum of Economic and Financial Policies (MEFP) which becomes the base for the bailout programme. According to reports, both sides have not yet exchanged the final macroeconomic positions something that should have been done by October 8.
As a result of the inconclusive talks with the IMF, markets will be impacted and the local currency might depreciate farther down. As per reports, Pakistan and the IMF failed to agree on the quantum of additional taxes and the roadmap for the fiscal stability of the power sector.
Multiple issues pertaining to the increase in gas prices and the measures required to curb the current account deficit to a manageable level also arose.
Pakistan had shared some data regarding power and gas tariffs as well as tax collection with the IMF. Tarin said during a news conference in Washington, “they are validating the numbers we shared with them and will get back to us”. Typically, the figures are agreed upon ahead of the policy-level talks.
As per sources, both sides did not exchange the critical tables pertaining to the general government budget due to the nature of differences.
The IMF had demanded that the government should impose additional taxes equating to at least 1% of the GDP or more than Rs525 billion. However, the government agreed to take measures only to the tune of Rs300 billion.
While talking to the media, Tarin said that the Federal Board of Revenue (FBR) is expected to achieve a tax collection target of Rs5.8 trillion this year. He added that during the next fiscal year, the tax-to-GDP ratio will be increased to 13.75% of the GDP. During the last fiscal year, the tax-to-GDP ratio was only 11.1%.
Tarin further notified that the finance secretary Yousaf Khan will be staying in Washington to continue the talks till Tuesday. As per the original plan, the finance secretary was scheduled to join his office from Monday. Tarin and the State Bank governor will be in New York and will join the talks virtually.
“If need be, I can return to the US,” Tarin added.
The finance minister had originally planned to spend two days in New York followed by one week in the UK, before either going to a Gulf country or returning to Pakistan.
Pakistan and the IMF had signed a 39-month EFF for $6 billion in July 2019 but the programme derailed resulting in disbursements of only $2 billion in two years.
The 6th review talks are for the disbursement of the next loan tranche of $1 billion but both sides are yet to cover a lot of ground even after holding two rounds of talks.
Pakistan has already accepted two conditions put forth by the IMF. The government has raised power tariffs by Rs1.68 per unit or up to 14% while increasing the petroleum products prices to a new historical level of Rs137.79 per litre.
Tarin said although the IMF wanted the cost of fuel to be passed on to the consumers, the government only increased prices by Rs10 per litre.
The federal government on Saturday spiked petrol prices by Rs10.49 per litre and high-speed diesel (HSD) by Rs12.44 per litre to Rs135.
