No agreement has been reached with the IMF yet on resumption of the programme. The technical level discussions started on October 04 in Pakistan, and later the policy level talks that took place in Washington could not conclude in time. This has been termed as a ‘failure’ in the media. Stipulated time of discussions hasn’t ended with an agreement. There are gaps at technical levels. Thus, discussions have returned to that level. It may now take days or weeks to reach conclusion.
Without getting into the technical jargons, the situation is that negotiations are on-going, and if both parties agree on certain terms, the staff level agreement will eventually take place. Back in March, when the programme was revived after the Covid breather, there were certain actions and policy decisions that needed to be taken before program could resume.
With a sudden change of teams at finance ministry in April, there was a wish to take a fresh start which was oblivious of reality on ground. The plan was to put IMF conditions on freeze, and accelerate the paddle on growth. The “loot-sale” budget was presented with an assumption that commodity prices shall ease and government would be able to capitalize on the current account surplus. The party was short lived. Commodity prices, as was expected, are now at multiyear high and are showing no signs of cooling off. The current account deficit has grown sharply, and the blessings of IMF are becoming imperative for sustaining external account stability.
Shaukat Tarin and team had to go back to the IMF. The numbers presented by the government are not adding up. Energy prices revision is needed. Some actions have already been taking, while others are pending. Government should negotiate to stagger the increase in electricity prices - and in order to create buffers - immediately revise gas tariffs. Consumers should expect petrol prices to increase further. On tax revenues, import-based growth is not sustainable when macro focus is to reduce imports growth. There are gaps on the fiscal side.
IMF is perhaps not able to trust finance ministry’s plan, and it’s [lack of] will to implement reforms. Thus, it is demanding prior actions. Had these been taken in the last six months, the situation could have been different today now that the country is in dire need of external support. US political clout is not on Pakistan’s side either. Waivers are hard to come by. But some high-level talks can ease the climate.
In a nutshell, the talks will be extended – which is not a good omen for Shaukat Tarin. Back in 2019, there was a similar situation. Pakistani negotiating team was confident on the finalization of the programme. But it wasn’t happening. The then finance minister, Asad Umar, was in the US in April 2019. Statements (and vibes) made by the then finance czar were at very different wavelengths from those coming from IMF and DC. Today, the situation with Shaukat Tarin appears similar.
In 2019, talks with IMF programme were concluded right after the next FM assumed office. Will the history repeat itself? Tarin’s pitch to the PM was two-fold: trickle down the wealth through Kamyab Pakistan Programme, and his (perceived) gravitas in re-negotiation with the IMF. KPP has shrunk to a political slogan, while the Q-block czar seems to be failing at IMF. Without speculating on Tarin’s future, the government must take more actions and restrengthen its commitments to finalize the macroeconomic framework. Once the numbers are settled and trust is revived, Fund programme would be back in motion. If leadership demonstrates political will, this can take place within days.
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