ISLAMABAD/KARACHI: Important progress has been made in talks between the International Monetary Fund and Pakistan to revive the country’s bailout programme, both sides said on Wednesday, with Islamabad expecting the lender to increase the size and duration of the 39-month, $6 billion worth of loan facility.

“Discussions between the IMF staff and the authorities on policies to strengthen macroeconomic stability in the coming year continue, and important progress has been made over the FY23 budget,” the IMF’s Esther Perez Ruiz told Aaj News.

The statement comes as Pakistan’s economy teeters on the brink of a financial crisis, with foreign exchange reserves drying up fast and the Pakistani rupee at record lows against the US dollar.

Pakistan unveiled a Rs9.5 trillion (around $47 billion) budget for 2022-23 this month aimed at tight fiscal consolidation in a bid to convince the IMF to restart much-needed bailout payments.

However, the lender later said additional measures were needed to bring Pakistan’s budget in line with the key objectives of the IMF programme.

The two sides held talks on Tuesday night and agreed on the budget and fiscal measures but still need to agree on a set of monetary targets, Finance Minister Miftah Ismail said.

He did not expect any “hiccups” in the remaining talks and expected an initial memorandum on macroeconomic and financial targets and then an official agreement.

Details of the agreement were not immediately available to Reuters.

“I am also expecting that the duration of the program will be extended by a year and the amount of loan will be augmented,” he told Reuters, adding that the IMF had not committed to it yet, but based on talks he expected it to come through.

Sources on Tuesday told Aaj News that the government would soon announce its decision on the agreement, as the global lender has agreed on all steps taken by Pakistan. They added that the IMF has also agreed to Pakistan’s budget targets.

• It has been decided that the tax target would be increased from Rs7,005 billion to 7,450 billion while the customs collection would go up from Rs950 billion to Rs1,005 billion.
• The government would further impose Rs5 per litre worth of petroleum levy on POL every month. The two sides have also agreed on increasing the GST collection target from Rs3,008 billion to 3,300 billion.
• It has been agreed to increase the target of income tax collection by Rs55 billion while the IMF has demanded that sales tax on petroleum products be levied at the rate of 11% from July 1.
• The primary surplus budget is to remain at Rs152 billion.
• Budget deficit to stand at Rs3,900 billion.

Pakistan had sought an increase in the size and duration of the programme when Ismail met with IMF officials in Washington in April.

Pakistan entered the IMF programme in 2019, but only half the funds have been disbursed to date as Islamabad has struggled to keep targets on track.

The last disbursement was in February and the next tranche was to follow a review in March, but the government of ousted prime minister Imran Khan introduced costly fuel price caps which threw fiscal targets and the programme off track.

The new government has removed the price caps, with fuel prices going up at the pump by up to 70% in a matter of three weeks.

The IMF has not asked for any cuts in the salaries and pensions of government employees, Ismail told Aaj News on Tuesday night.

Sources said the country has been unable to meet two targets of the global lender, including increasing income and decreasing expenses.

Within two days, an agreement would be “reached within two days,” he had told journalists two days ago. But, then both sides clarified that any written agreement has so far not been reached. Ismail reiterated the same thing in an interview with an international media organisation.

Overall, a new report having details about new taxes including the petroleum levy has to be submitted to the IMF. Government sources have expressed their resolve to meet all the requirements and they will reach the agreement in a short time.

It is expected the tax ratio would increase, coupled with the petroleum levy would have a big impact on the people. Sources said the IMF was “not showing any flexibility” and the government was willing to accept the terms.

What are the IMF conditions, asks economic expert Lutfi

Amid the progress in the talks with IMF on the bailout package, economist Naazish Lutfi said the global lenders upon giving the money ask the countries about the return plan.

“When someone gives you money they do not tell you the terms of recovery but ask how you will return it and then the country makes a plan for loan return,” he told Aaj News.

Lutfi, who is president of the Washington Institute of Finance, said that if the country could not come up with a plan then the IMF suggest steps like increasing petrol, gas and electricity prices to generate money.

He was of the view that the deal would soon be completed. “But, will the poor people sustain the inflation which we are seeing is around 35-40%. In the budget, the government did not pressure on rich people.”

There are chances that there will be a deal with IMF, Lutfi said, adding: “What sacrifices will we have to make?”

‘Problems in budget’

Former finance minister Salman Shah, who had also joined the programme, claimed that there were many problems in the budget as the government presented without taking the IMF on board, leading to speculations.

“Our economic team should have done this earlier [IMF agreement]. This has led to uncertainty in the market. I think IMF should also think about its statements as it harms Pakistan,” he said.

“Secondly our area is circular debt as the country cannot recover the dues. Gas circular debt is also increasing,” Shah said, stressing the need for reforms and increasing remittances, exports, and investment. But, he added many reforms would put the burden on the people

On the coalition government’s accusations of taking record loans, Shah said put the blame on the governments over the last 10 years.

Shah, who was part of the former president General (retd) Pervez Musharraf), alleged that the government after 2007 invested money on a political basis and started expensive projects, which had economic costs and not many benefits.

“So if you want to blame someone then it must be governments over the past 10 years. You will have to give them credit for it.”

‘New landmine’

Muzammil Aslam, the former finance ministry spokesperson, the coalition government would put a “new landmine” by increasing the petrol price up to Rs50 after agreeing to the IMF terms.

“First of all IMF has not shown any flexibility and all flexibility is shown by Pakistan,” he said on a query. The ex-spokesperson admitted that the global lender had also asked them to take back the petroleum levy.

Aslam was apparently referring to the soaring price of petrol, electricity and basic commodities as a “landmine”.

He claimed that the IMF took measures after it came to know that the government was unable to bring money from different sources to support the economy. An increase in electricity tariff and petroleum products was a result of that.

“New budget will come and will be passed by parliament without debate,” Aslam said and described the government talks with IMF as “bad negotiations”.