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Govt team tries to persuade IMF to unlock lending

  • Fund asks Pakistan to withdraw untargeted subsidies, reduce circular debt and meet petroleum levy
Published February 1, 2023
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ISLAMABAD: The International Monetary Fund (IMF) on Tuesday asked Pakistan to withdraw untargeted subsidies, reduce circular debt, meet petroleum levy and Federal Board of Revenue (FBR) tax collection targets, it is learnt.

Official sources revealed to Business Recorder that these demands were tabled during Federal Minister for Finance and Revenue Senator Mohammad Ishaq Dar’s meeting held with the IMF review Mission led by IMF Mission Chief Nathan Porter at Finance Division, here on Tuesday.

The Fund’s mission is in Pakistan for technical and policy-level discussions to revive the $7 billion Extended Fund Facility (EFF). During the first session on Tuesday, the IMF’s review mission, identified the budget deficit and slippages, reiterating its strict stance on implementing Fund’s conditions.

Esther Perez Ruiz, IMF resident representative, Minister of State for Finance and Revenue Dr Aisha Ghous Pasha, SAPM on Finance Tariq Bajwa, SAPM on Revenue Tariq Mehmood Pasha, Governor State Bank of Pakistan Jamil Ahmed, secretary finance, chairman FBR, members of the IMF delegation, and senior officials from the Finance Division attended the meeting.

Crucial IMF talks begin today

According to the official statement of the Finance Division, the meeting discussed and reviewed the economic and fiscal policies and reforms agenda to accomplish the 9th review under the EFF.

The finance minister briefed the Mission on fiscal and economic reforms and measures being taken by the government in different sectors. He apprised the mission that reforms are being introduced in the power sector and a high-level committee has been formed for devising modalities to offset the menace of circular debt in the gas sector.

The finance minister said that the government was committed to completing the present programme. He further extended all his support to the Mission and committed to working together for reaching an agreement to complete the 9th review under the EFF (Extended Fund Facility).

The governor SBP gave a briefing on the market-based exchange rate policy and informed the delegation about the recent hike of 100 basis points in the policy rate.

The IMF Mission chief expressed his confidence that the government will meet the IMF requirements for the completion of the 9th review and hoped that Pakistan would continue to make progress insofar as reforms in various sectors and complete the IMF Programme within timeframe effectively. He further added that the IMF and Pakistan will be working together on fiscal reforms. Official sources said the Fund agreed to the government’s request of providing relief via the Benazir Income Support Programme (BISP) to the poor segments of society but insisted on strict adherence to financial discipline.

The two sides, on the first day of the technical talks, reviewed the economic situation of Pakistan and the ninth review of the bailout programme — which is pending since September.

Sources said that the Fund insisted that Pakistan must fulfil promises, including budget deficit, which should be maintained at 4.9 percent with a primary deficit at 0.2 percent of the GDP. The Fund has reportedly pressed the government for withdrawing the Rs110 billion subsidy to the export-oriented sector. It also asked the government that FBR’s tax collection target of Rs7,470 billion should be met.

The FBR has proposed new taxation measures of over Rs300 billion to overcome the revenue shortfall during 2022-23. The revenue impact of each proposed revenue measure has also been shared with the Fund, sources said.

The mission has also asked the government to reduce circular debt, while the Rs855 billion petroleum levy target should also be met. Further, performance of state-owned entities should be improved to reduce their losses and the privatisation programme should be expedited.

The sources added that the government promised the Fund that it will fulfill all the conditions; however, it requested the global lender to grant it more time to honour the promises it had made.

Reuters adds: The IMF funding is critical for Pakistan, which has barely enough foreign exchange reserves to cover three weeks of imports. Fuel comprises the bulk of the import bill.

Pakistan secured a $6 billion IMF bailout in 2019, which was topped up with another $1 billion last year.

The talks, to continue through Feb. 9, are meant to clear the IMF’s 9th review of its Extended Fund Facility, aimed at helping countries facing balance-of-payments crises.

The lender had set several conditions for resuming the bailout, including a market-determined exchange rate for the local currency and an easing of fuel subsidies.

Last week, Pakistan removed an artificial cap on the rupee, resulting in it losing 14.73% in interbank trading during the last three trading sessions.

The central bank said the rupee gained 0.65% against dollar on Tuesday in inter-bank trading, but, according to the exchange companies’ association, lost 0.54% in the open market.

“We believe that the rupee’s weakness still has further to run, particularly with Pakistan’s balance-of-payments position likely to remain weak for several more months,” Fitch Solutions said.

New measures also include taxation, shedding power sector debt and hiking energy prices, with people already facing 24.5% inflation. The central bank also raised interest rates this month by 100 basis points to fight inflation.

The finance ministry, which raised fuel prices by 16% over the weekend ahead of the talks, said in its monthly report issued on Tuesday that fiscal consolidation was key to saving official reserves and exchange rate stability.

Copyright Business Recorder, 2023


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