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Tuesday, June 18, 2024  
11 Dhul-Hijjah 1445  

No agreement, and long list of demands as IMF team leaves

Some points will be decided by Washington, says finance secretary
Men reach out to buy subsidised flour sacks from a truck in Karachi, Pakistan January 10, 2023. REUTERS/
Men reach out to buy subsidised flour sacks from a truck in Karachi, Pakistan January 10, 2023. REUTERS/
Pakistan’s Finance Minister Ishaq Dar gestures during a news conference to announce the economic survey of fiscal year 2016-2017, in Islamabad, Pakistan, May 25, 2017. REUTERS
Pakistan’s Finance Minister Ishaq Dar gestures during a news conference to announce the economic survey of fiscal year 2016-2017, in Islamabad, Pakistan, May 25, 2017. REUTERS

The IMF said it welcomed Pakistan’s commitment to take necessary measures to improve its economic situation but clarified that more discussions would be needed before an agreement is reached in a statement on Friday.

Earlier reports had said that Pakistan and the IMF have reached an agreement on key prior actions that Islamabad needs to take before the release of the next loan tranche after protracted talks that continued throughout the day on Thursday. However, a staff-level agreement was not signed.

The statement also said that the discussions in Pakistan will ‘result in a Board discussion’ as claimed by Pakistan’s finance secretary.

The statement also highlighted crucial areas where the government would need to make efforts including improving fiscal position, scaling up social protection and preventing accumulation of circular debt.

“Virtual discussions will continue in the coming days to finalize the implementation details of these policies,” the report said.

The statement also clarified that support from ‘official partners’ would be necessary to help Pakistan overcome the crisis.

IMF recommendations are in Pakistan’s interest, says Dar

“I think it is in the interest of Pakistan to fix these things,” Finance Minister Ishaq Dar said in a press conference on Friday. He confirmed that negotiations had not concluded but a draft MEFP had been received.

He also said that it must be remembered who had agreed to to this IMF deal in the first place, although the current government had decided to fix the mess even if it was not made by itself. He especially mentioned the energy sector as a key area where reforms are needed.

He added that the speculation about Rs500-600 bn being added to taxes was false, the real amount of tax came to 170 billion.

“We will try to make sure that no burden is passed on to the common person.”

Thursday’s progress

Aaj News reported late Thursday night that the IMF delegation had handed over the the Memorandum of Economic and Financial Policies (MEFP) to Pakistan.

The handing over of MEFP is a key step as these documents outline the conditions of the loan and list all the steps, or prior actions, that Pakistan government will have to take to receive the money.

However, there was no staff level agreement or SLA.

“Some points will be decided by Washington. An agreement could not be reached at the staff level yet,” Finance Ministry Secretary Hamid Yaqoob Sheikh said.

“The mission is awaiting approval of the declaration from Washington. The IMF review mission will issue a statement on the negotiations,” Sheikh added. “Finance Minister Ishaq Dar will hold a press conference later. The IMF delegation would go back on Friday morning.”

News agency AFP reported that Pakistan and IMF have agreed on actions and advance measures. The IMF mission has asked for more time for the agreement and there would be a staff-level agreement after approval from Washington.

Earlier, sources told Aaj News Thursday afternoon that an announcement about the agreement was expected ‘at any moment.’

During protracted talks on Thursday, the IMF delegation also spoke with Prime Minister Shehbaz Sharif via video link.

The International Monetary Fund (IMF) delegation landed in Islamabad last week to thrash out tough conditions that Prime Minister Shehbaz Sharif called “beyond imagination”. Pakistan’s economy is in dire straits, stricken by a balance of payments crisis as it attempts to service high levels of external debt amid political chaos and deteriorating security.

‘Not many options’

“We don’t have easy options after where we have brought Pakistan’s economy,” economist Farrukh Saleem said when Asma Shirazi asked him whether the agreement reached by Pakistan and the IMF was “good news” for the country in her show Faisla Aap Ka on Aaj News.

Her question was asked against the backdrop that the agreement would probably result in additional taxes on the people of Pakistan and soaring inflation after the IMF funding.

“There are two options and as the result of both options the burden of inflation is going to rise on the 20 million people, not decrease,” he said, adding that the first choice pertained to not becoming part of the IMF and if such an option was ruled out then the country would default that lead to a shortage of every item the country imports.

He added that if the country becomes part of the international lender’s programme then the country completely avoids the danger of going default. But, he warned of a 10% to 15% increase in the inflation rate, according to his estimates, which currently stands at 25% to 26% (according to government statistics).

Earlier in the day, Saleem had shared five updates on the deal with the IMF in a tweet. “1. Draft MEFP not yet shared. 2. That means there’s one or more outstanding issues. 3. I think there’s only one outstanding issue. 4. That issue is: Will China, Saudi and UAE give Pakistan $4 billion or not?. 5. That, in my opinion, is the sole unresolved issue,” he said.

But, after almost five hours with the update on the agreement, he said that the “most important and good news” from the IMF was that the global lender has shared the Memorandum of Economic and Financial Policies (MEFP) with the Ministry of Finance.

Usually, this document is shared 48 hours before their departure so that the team has ample time to incorporate it, however, Pakistan issued this handout late.

He added that the deal with the IMF had a good impact on the stock market, inter-bank market, and the rate of Pakistani bonds in the international market.

When Pakistan will get the money?

The following are the stages of funding approval:

  1. Sharing of MEFP
  2. Staff Level Agreement (SLA)
  3. SLA goes to IMF Executive Board
  4. Board gives approval
  5. Pakistan gets $1.1 billion disbursement

The economist said that the green signal from IMF opens door to inflows from friendly countries – China, Saudi Arabia, and the United Arab Emirates. It is expected that Pakistan would get around 3$ billion to $4 billion from them, he added.

“It will fill our economic gap and think our calculations are complete by the end of June,” he said.

Saleem also used medical terminologies in reply to the host’s query that the IMF funding would get Pakistan “out of ventilator and the economy would improve” to some extent. “It is important to differentiate between disease and its symptoms. The developments so far taken place are being taken to suppress the symptoms. This is not the cure for the disease,” he said.

The economist, who also writes columns for local newspapers, added that the cure for the disease was in the country’s imports and exports. “Until the deficit of around $40 to $45 is there the symptoms would reappear,” he said.

‘Supplemental oxygen’

Politician Mustafa Nawaz Khokhar described the IMF funding as “supplemental oxygen to a patient who is on a ventilator”. He stressed that it was not a long-term solution and wondered where the country would be standing after the next 10 months.

“We have to take tough decisions and speak the truth to the people if the economy has to be brought on track,” he said and blamed the elites for the prevailing economic situation when Asma asked whether the upper class would be part of the ‘tough decisions’.

Elites would feel the pain when the monopolies in different sectors would be broken, Khokhar added.

The former PPP leader linked economic stability with political stability which means the country has to come out of the political crisis. “Secondly, we can no more function as a security state. We have to make Pakistan a functional democratic country by forgoing the ‘security concerns’ that had been in the past,” he said and wondered that the state of the country that does not trades with any country in the region, like the neighbouring countries.

When Asma said that trade with India would be difficult for political parties and Imran Khan’s persistence stance against India, Khokhar said that the PTI chairman was “actually becoming part of the problem”.

He was of the view that the political leadership has the capacity to chalk out some solution, warning that otherwise the people would continue to bear the brunt.

‘Little bit of arm twisting’

“The IMF is clearly asking for much more than what the government is willing to do, even with a little bit of arm twisting,” said economic analyst Abid Hasan, a former adviser to the World Bank, in the capital Islamabad.

“Both sides are waiting for the other to blink.”

Finance Minister Ishaq Dar told reporters on Thursday that “a final round of talks is going on”.

Later on Thursday, the central bank released fresh data warning its forex reserves had plunged $170 million in a week, standing at just $2.9 billion as of last Friday.

The IMF wants a boost to the pitifully low tax base, an end to tax exemptions for the export sector, and further hikes to artificially low petrol, electricity and gas prices meant to help low-income families.

It is also pushing for Pakistan to keep a sustainable amount of US dollars in the bank through guarantees of further support from friendly nations Saudi Arabia, China and the UAE, as well as the World Bank.

“There is no deadlock,” Pakistan Energy Minister Khurram Dastgir Khan told local media on Wednesday. “Detailed and vigorous discussions have been held in the past 10 days.” “I have full hope that these talks will be concluded successfully.”

Bowing to pressure

Years of financial mismanagement and political instability have damaged Pakistan’s economy – damage exacerbated by a global energy crisis and devastating floods that submerged a third of the country.

With the prospect of national bankruptcy looming, Islamabad in recent weeks began to bow to pressure, prompting the IMF’s last-minute visit.

The government loosened controls on the rupee to rein in a rampant black market in US dollars – a step that caused the currency to plunge to a record low – and hiked petrol prices by 16 percent.

A government official, who asked not to be named, told AFP that the “IMF is not satisfied with the current prices of petroleum and energy”.

Fears of a further price hike have seen hoarding in the country’s largest province of Punjab, pushing minister of state Musadik Malik to report that the government had “no plans to increase the fuel price”.

Struggling industries are battling for the government to unblock imports, with thousands of shipping containers held up at Karachi port.

The steel industry has warned the government that unless scrap metal imports are restarted, there will be a cascading effect on employment.

Pakistan had sketched out a $6.5 billion loan package with the IMF, which has so far paid out roughly half that amount.

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Shehbaz Sharif

Pakistan

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