KARACHI: Pakistan and a visiting International Monetary Fund (IMF) mission held discussions on Tuesday on the South Asian nation’s economic and fiscal policies and reforms agenda to complete a 9th review of a stalled loan program, the finance ministry said.
The IMF mission headed by Nathan Porter is in Islamabad till February 9, 2023, to continue discussions for the revival of a $7 billion loan program that was signed in 2019. The mission will focus on policies to restore domestic and external sustainability, including to strengthen Pakistan’s fiscal position with durable and high quality measures while supporting Pakistanis affected by last summer’s record-breaking floods.
Talks for the pending ninth review were originally scheduled for October but were delayed mainly due to government’s reluctance to take ‘unpopular decisions’ being pushed by the IMF.
On Tuesday, Federal Minister for Finance Ishaq Dar held a meeting with the IMF review mission led by Porter at the Finance Division.
“The meeting discussed and reviewed the economic and fiscal policies and reforms agenda to accomplish the 9th review under the Extended Fund Facility,” a statement issued by the finance ministry said.
Dar briefed the Mission on fiscal and economic reforms and measures being taken by the government in different sectors, including bridging the fiscal gap and bringing exchange rate stability and reforms in the energy sector:
“He apprised that reforms are being introduced in power sector and a high level committee has been formed for devising modalities to offset the menace of circular debt in gas sector.”
The finance ministry statement said Porter “expressed his confidence that the government will meet the IMF requirements for the completion of the 9th review.”
Pakistan has already met two key demands of the IMF ahead of the Mission’s Islamabad visit, including adjusting the Pakistani rupee according to market-based demand and supply, and a Rs35 per litter hike in petroleum prices.
“It is good that the talks have started,” Tahir Abbas, head of Research at Arif Habib Limited, said. “It is now likely that the mini-budget would be presented after development consensus on the measures to be taken.”
Pakistani analysts said the country now had to convince the IMF team to go easy on Rs300 billion tax revenue measures and expected electricity and gas tariffs.
Pakistan’s highest economic decision making body, the Economic Coordination Committee (ECC) of cabinet, is scheduled to meet today, Tuesday, to discuss issues in the power sector, including a circular debt management plan, fuel charges adjustment, and a waiver of electricity bills in flood affected areas.
“The ECC is going to take up the matter of tariff rationalization and clearance of accumulation of arrears under the circular debt management plan. This is another step to accommodate IMF demands,” Abbas said.
As the IMF and authorities resumed talks in Islamabad, Pakistan’s national currency showed some resistance against the United State dollar and closed at Rs267.89 in the interbank market, as compared to Rs269.63 of Monday’s close.
Pakistan’s national currency is under pressure as the country faces fast depleting foreign exchange reserves that have dropped to just $3.7 billion, not even enough to cover import payments for a single month. Pakistan on average has imported goods valued at $5 billion per month during the last six months.
The successful conclusion of talks between authorities and IMF team will lead to the disbursement of $1.1 billion but analysts expect the implementation of key measures under the IMF program will push inflation to over 30 percent in upcoming months.