The government has denied that talks with the International Monetary Fund (IMF) have failed.
A press statement by the Ministry of Finance said on Sunday: “Negotiations between Pakistan and IMF are moving forward positively. Finance Division secretary is leading the talks in Washington DC while the technical teams of both sides are continuing detailed discussions in virtual format after exchange of relevant data sets,” it said.
“No timeframe was set at any stage for conclusion of the talks”.
Later, Adviser to the Prime Minister on Finance Shaukat Tarin said that the impression that Pakistan’s negotiations with the IMF have failed is false.
Talking to a Pakistani news channel from Washington DC on Sunday, he said that Pakistan is still negotiating a deal with the IMF.
Tarin said he had been highlighting shortcomings in our system and working to fix it. “I used to tell you why we are in the mess that we are in today,” he added.
Tarin said the country’s economic situation will improve. “Give us a little time, an incompetent person like me will deliver for you” he continued.
IMF UNSATISFIED: An earlier report said that the IMF remains unsatisfied despite Pakistan’s tough measures due to which the two sides have failed to reach a staff-level agreement.
Despite hectic efforts and fulfilling the toughest conditions of the IMF on account of raising the electricity tariff by Rs1.39 per unit on average for baseline tariff, raising POL prices by Rs10.49 for petrol and Rs12.44 for diesel, the IMF staff is still unsatisfied with the macroeconomic framework under the Memorandum of Economic and Financial Policies (MEFP) and without agreement over it, the staff-level agreement will not be struck and the IMF tranche will be jeopardised.
Sources had said that it was a worrisome development that the IMF staff was so far busy in crunching numbers mainly on the fiscal framework, external front and power sector.
Extraordinary expertise is required for reconciliation on the MEFP as any insertion of wrong or nonviable figures could result in the suspension of the IMF programme. Any failure to reconcile the projections would hamper Islamabad from accomplishing all future reviews under the $6 billion EFF arrangement.
To complete the 36 months of the Extended Fund Arrangement, Pakistan will have to complete 12 reviews, therefore finalisation of the MEFP with deft management and professional skills is critical.
The State Bank of Pakistan (SBP) projected the Current Account Deficit (CAD) to hover around 3% of the GDP, equivalent to $9.5 billion for the current fiscal year. However, the IMF has pitched the CAD on the higher side and the MEFP would give a clear picture but the Fund staff is projecting it over 4% of the GDP.
In the power sector, the IMF also considers the pace of accumulation of circular debt to be on the higher side than the claims made by the government.
Although the government approved hiking of the power tariff by Rs1.39 per unit, the Fund has assessed that Pakistan will have to hike it by more in the range of Rs1.50 to Rs2.50 per unit on account of fuel price adjustment in this ongoing quarter (Oct-Dec) of the current fiscal year.
On the fiscal framework, the IMF has asked Islamabad to take additional taxation measures, including abolishing GST exemptions, adjusting Personal Income Tax slabs, raising Regulatory Duty and slashing down the Public Sector Development Program (PSDP) by Rs200 – 300 billion. The differences still exist over the pace and phasing of removal of GST exemptions as Islamabad is suggesting removing of GST exemptions in a staggered manner.
On the Personal Income Tax (PIT), the IMF wants adjustments in income slabs for which the minimum taxable ceiling of Rs0.6 million might be jacked up. The rate of tax on higher-income slabs would also be increased while the number of income tax slabs would also be decreased.
