Washington/Islamabad: Cash-strapped Pakistan and the IMF have failed to reach a staff-level agreement on a $1.1 billion bailout package needed to save the country from bankruptcy. After 10 days of talks here, the discussions between the two sides were inclusive, with the Washington-based global lender saying the discussions would continue virtually in the coming days.
Pakistan, whose foreign exchange has fallen below USD 3 billion, is in dire need of financial aid and a bailout package from the International Monetary Fund to avoid economic collapse. The 9th review is currently pending and its successful completion will result in USD 1.1 billion as the next tranche.
An IMF mission led by Nathan Porter visited Islamabad from 31 January to 9 February to hold consultations as part of the Ninth Review of the Program of Officials Supported by the IMF Extended Fund Facility (EFF) Arrangement.
The Pakistani side was led by Finance Minister Ishaq Dar. In a statement, Porter said, the IMF team welcomes the commitment of Pakistan Prime Minister Shehbaz Sharif to implement the policies needed to protect macroeconomic stability and thanks the officials for the constructive discussions.
“During the mission, considerable progress has been made on policy measures to address domestic and external imbalances,” he said.
“The virtual discussions will continue in the coming days to finalize the implementation details of these policies,” he said.
He said key priorities include strengthening the fiscal position with sustainable revenue measures and reducing untargeted subsidies, while enhancing social protection to help the most vulnerable and affected by floods.
Other priorities include allowing the exchange rate to be determined by the market in order to gradually eliminate the foreign exchange shortage; and enhancing energy provision by preventing further accumulation of circular debt and ensuring the viability of the energy sector.
“Timely and decisive implementation of these policies, along with firm financial support from official partners, is critical for Pakistan to successfully achieve macroeconomic stability and pursue its sustainable development,” Porter said.
Pakistan’s Finance Minister Dar said at a press conference on Friday that the government has received a memorandum on terms and conditions from the IMF to complete the $7 billion loan programme, but admitted that the two sides have yet to Employee-level agreement has not been done. ,
“We insisted that they (the fund delegation) give us the MEFP before leaving so that we can see it over the weekend,” he said. He said the government and IMF officials would hold a virtual meeting on this on Monday.
“I can confirm that today (Friday) at 9 am we have received the MEFP draft. We will study it thoroughly.” [MEFP] over the weekend and will have a virtual meeting with [Fund officials], It will obviously take a few days,” he said.
The finance minister acknowledged that reforms in some areas required by the IMF were in Pakistan’s interest, criticizing the previous Pakistan Tehreek-e-Insaf-led government for ‘economic destruction and misrule’.
“These things need to be fixed. These reforms are painful, but necessary,” Dar said.
He made the statement after the IMF delegation left for Pakistan on Thursday night after 10 days of talks with the government.
“It is a standard procedure which cannot be curtailed and hopefully they will not unnecessarily increase it,” Dar said. The Finance Minister shared that after the completion of the review, the country will receive a disbursement of USD 1.2 billion in the form of Special Drawing Rights (SDRs).
SDRs are international reserve assets created by the IMF in 1969 and allocated to member states to supplement existing official reserves.
Outlining the policy measures agreed between the government and the IMF, Dar said a tax of Rs 170 billion would be levied.
He, however, said that the government would try to ensure that the direct burden of taxes does not fall on the common man.
Dar said that to levy the tax, the government would introduce a finance bill or an ordinance, depending on the situation at that point of time.
“Secondly, we will implement the agreed energy reforms through the federal cabinet.” circular loan.
The Pakistan government initially told the media at the conclusion of the talks on Thursday evening that everything had been resolved and that Dar would announce the details at a press conference.
But the conference was postponed and instead Finance Secretary Hameed Yaqoob Sheikh told the media that the two sides agreed on a set of pre-actions but a staff-level agreement (SLA) on the Memorandum of Economic and Financial Policies (MEFP). It was not signed yet. ,
“All the issues have been resolved and the pre-arranged actions have been agreed upon,” Sheikh said, adding that the SLA would be finalized in the coming days.
The IMF mission is going to share the details of the talks with top IMF officials in Washington and then issue a statement.
The Finance Secretary dismissed the notion that there was any disagreement, saying that ‘all things are settled’.
However, he refused to give details of the action taken earlier. He said the Finance Minister will address a press conference after the Fund issues its statement.
The IMF mission came to Pakistan after Islamabad agreed to restore market-based exchange rate and take tough decisions including hike in petroleum prices.
In the first phase, Pakistan’s technical discussion with the IMF lasted till 3 February. This was followed by the second round of policy talks, which concluded on 9 February to finalize a memorandum of economic and financial policies.
Pakistan signed a USD 6 billion IMF program in 2019, which increased to USD 7 billion last year.
Earlier, talks on the review were originally scheduled to take place in October but were delayed after Dar refused to implement some of the fund’s conditions after taking over the finance ministry from Miftah Ismail.
Ismail has said that due to dwindling foreign exchange reserves, Pakistan will have to enter another IMF program after the current one expires in June.
Pakistan’s reserves have fallen below USD 3 billion and the country is feared to default on its external liabilities unless the IMF unlocks its funds for it. The availability of IMF money will survive the default but it is likely to trigger a tsunami of price hikes.
“when this [programme] ends in June, we will probably have no more than USD 10 billion in reserves, if that. This will cover imports for about one-and-a-half months,” he was quoted as saying by Dawn News.
He said that as a result of the low reserves, the country would have to approach the World Bank and the Asian Development Bank for loans, which would require it to enter another IMF program.
“We have to pay around USD 20 billion now for near future due to loan repayment. I am quite sure we will have to do IMF programs continuously,” he said.
Terming the IMF as the lender of the last resort, Ismail said it is akin to being admitted to the Intensive Care Unit (ICU).
“You want to avoid going to the ICU, you have to start living a healthy life. Once we start living within our means, once we start following rational and wise economic policies, we Going to the IMF can be avoided…but if we are living as we are, going from one boom-bust cycle to another, the IMF is the lender of last resort and we will have to continue,” East Finance said the minister.