Pakistan and the International Monetary Fund (IMF) have again failed to reach a staff-level agreement at the scheduled time because of differences over the macroeconomic framework and deepening uncertainty over the future roadmap of the economy.
The fresh round of talks from October 4 to 15 for the release of the $1 billion loan tranche and receiving a good economic health certificate remained inconclusive.
The talks failed despite Pakistan having implemented a prior condition of increasing electricity and petroleum products prices. However, both sides have shown resolve to remain engaged.
In his attempts to conclude talks on a positive note, Finance Minister Shaukat Tarin (whose tenure expired on Friday) met with IMF managing director Christalina Georgieva and US Assistant Secretary of State for South and Central Asia Donald Lu. However, it seemed both these meetings also remained unproductive.
“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],” Teresa Dabán Sanchez, the outgoing resident representative of the IMF told The Express Tribune.
It was for the second time that Pakistan and the IMF could not find “basis for the completion of the 6th review”, as its first attempt made in June also remained futile.
Pakistan and the IMF have so far failed to agree on the Memorandum of Economic and Financial Policies (MEFP) — which becomes the base for the bailout programme. Sources told The Express Tribune that both sides have not yet exchanged the final macroeconomic positions — a job that should have been completed on October 8.
The uncertainty over the fate of the IMF talks may unnerve the markets and bring the rupee-dollar parity under more pressure. Pakistan and the IMF could not agree on the quantum of additional taxes and the roadmap for fiscal stability of the power sector, the sources added.
There were also issues about increase in gas prices and the measures needed to contain the current account deficit to a manageable level. The talks began in Islamabad on October 4, but Tarin wanted them to conclude in Washington on October 15.
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Pakistan had shared some statistics with the IMF on power and gas tariffs and tax collection and “they are validating the numbers we shared with them and will get back to us”, said Tarin while addressing a news conference in Washington at the conclusion of his visit.
Usually, the numbers are agreed upon, at least in principle, before the start of the policy-level talks.
However, both the two sides did not exchange the critical tables related to the general government budget due to the nature of differences, the sources said.
The IMF had demanded to impose additional taxes equal to at least 1% of the GDP or over Rs525 billion but the government was willing to take measures to the tune of Rs300 billion, the sources added.
They said that the round of talks on Saturday on the quantum of additional taxes too remained inconclusive.
This year, the Federal Board of Revenue (FBR) would achieve a tax collection target of Rs5.8 trillion, Tarin told the media. He added that in the next fiscal year, the tax-to-GDP ratio would be increased to 13.75% of the GDP.
The tax-to-GDP ratio was only 11.1% at the end of the last fiscal year.
Finance Secretary Yousaf Khan would stay in Washington to continue the talks till Tuesday, Tarin said during his news conference. According to the original plan, the finance secretary was scheduled to join his office from Monday. Tarin said he and the State Bank governor would be in New York and join the talks virtually.
“If need be, I can return to the US,” he added.
As per his original plan, Tarin was scheduled to spend two days in New York and then one week in the UK, before either going to a Gulf country or returning to Pakistan.
In July 2019, Pakistan and the IMF had signed a 39-month EFF for $6 billion but the programme remained largely off track, 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 it seems that both sides still have to cover a lot of ground despite holding two rounds, first in June and then second this month.
Pakistan has already accepted two conditions of the IMF. It has increased the electricity prices by Rs1.68 per unit or up to 14% and also jacked up the petroleum products prices to the new historical level of Rs137.79 per litre.
Tarin said the IMF wanted the cost of fuel to be passed on to the consumers and the government only did so while increasing prices by Rs10 per litre.
The federal government on Saturday raised the price of petrol by Rs10.49 per litre and high-speed diesel (HSD) by Rs12.44 per litre to Rs135.