Pakistan and the IMF’s review talks have so far
remained inconclusive after breaches committed by Islamabad on different fronts
which the Fund staff termed as ‘deviations’ from the IMF agreed.

The IMF staff also raised serious objections
over the Prime Minister’s Relief Package for slashing down petrol, diesel, and
electricity prices as well as granting tax amnesty for the industrial sector.
The IMF had slapped the condition that Pakistan will not grant any tax amnesty
and it is part of a continuous structural benchmark. However, Islamabad
breached this continuous structural benchmark which now requires a waiver from
the IMF’s Executive Board for completion of the 7th review and release of the
next tranche.

For striking consensus on Memorandum of Financial and Economic
Policies (MEFP), the IMF has asked Islamabad to jack up discount rate, allow
free movement of the exchange rate, slash down Kamyab Pakistan Program (KPP)
and reverse relief package measures to align it with prudent financial
management. The review talks were scheduled for two weeks and are expected to
conclude on coming Wednesday. With emerging of new realities on the
macroeconomic front, the IMF has opposed the PM’s Relief Package under which
the petrol and diesel prices were reduced by Rs 10 per liter and electricity
prices by Rs 5 per unit from March to June 2022. The government has envisaged
disbursing loans of Rs 407 billion under much hyped KPP but the IMF is asking
to slash down this amount for two years period till June 2023.

Amid rising political temperature, it was expected that both sides
would not be able to strike staff-level agreement under 7th review so the
parleys will continue lingering on till the political dust is settled in the
wake of no confidence move against Prime Minister Imran Khan. As Pakistan and
the IMF team have so far failed to strike a consensus on the MEFP mainly
because of rising twin deficit projections, the prescriptions for tackling the
budget deficit and current account deficit could not be evolved on policy
measures in the shape of tightening monetary and fiscal positions. The IMF had
envisaged the current account deficit at $12.2 billion on eve of the 6th review
but it had already touched $11.6 billion for the first seven months of the
current fiscal year. The budget deficit is all set to go up beyond 7 percent of
GDP, equivalent to Rs 4.4 trillion, the highest ever absolute figure during the
current financial year. In order to curtail the twin deficits, the IMF’s
prescriptions clearly illustrate tightening of fiscal and monetary policies as
well as exchange rate adjustments in the range of Rs 185-190 against the US
dollar.

On the economic front, the IMF is also coming up with a
prescription of tough prior actions in the shape of rising twin deficits
including the budget deficit and the current account deficit. The indicative
target for Net International Reserves might be another thorny issue between the
two sides. The IMF is also suggesting hiking discount rates and abolishing tax
exemptions for individual taxpayers under Personal Income Tax and also reducing
a number of income tax slabs.“Both sides will continue talks till next week for
making renewed efforts to conclude 7th review under $6 billion Extended Fund
Facility, ” top official sources confirmed to The News here on Friday.

Pakistan and the IMF were holding virtual review talks with the
schedule to hold parleys from March 4 to 16, 2022 with the expectation that they
would be able to strike a staff-level agreement.“Hopefully the talks will be
conclude in next week. It has taken some additional time due to relief package
and industrial promotion package” one of the top official negotiators from the
Pakistani side told this scribe.

This scribe contacted to Federal Minister for Finance and Revenues
Shaukat Tarin for seeking comments on Friday, he replied that the talks between
Pakistan and the IMF teams were continuing to the best of his knowledge.
However, he did not comment on the outcome of ongoing parleys between the two
sides. This scribe also sent questions to the IMF’s Resident Chief in Pakistan
Esther Perez Ruiz but got no response till the filing of this story.

The last two reviews whereby the third, fourth, and fifth reviews
were combined and the sixth review under the EFF arrangement took almost nine
months period each time for completion of parleys. Now both sides were
conscious of the fact that there is no liberty available to them for extending
talks for months so they will have to conclude the ongoing talks by the end of
the ongoing month for meeting the deadline to forward the staff report before
the IMF’s executive board by next month to meet the deadlines of the programme.
There are three outstanding reviews including 7th, 8th, and 9th of the IMF
programme under the existing EFF arrangement which would expire by September
2022.

 


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2022-03-12

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