Sections of the media have been speculating recently about the ongoing 7th review under IMF’s Extended Fund Facility (EFF). It is clarified that negotiations under the 7th review are continuing as planned and the two sides remain engaged on a regular basis at a technical level through virtual meetings and data sharing.
The focus of negotiations under the 7th review has been on the agreed targets between the two sides, as well as the recently announced relief and industrial promotion packages. There is a consensus that all the end-December agreed targets have been achieved, while progress on other actions mentioned in the Memorandum on Economic and Financial Policies (MEFP) for the 6th review has also been found to be satisfactory.
On the relief package, complete details, including financing options, have been shared with the IMF and a general understanding has been developed. IMF has, however, indicated the need for some further discussions on the industrial promotion package over the next few days. An understanding is expected to be developed on the said package subsequent to those discussions.
Upon completion of the technical talks, the text of MEFP for the 7th review will come under discussion. The government is confident that the finalization of the MEFP would lead to IMF Board meeting towards the end of April. The government remains committed to completing the IMF programme successfully in September.
Talks with IMF may continue to linger: Pasha
Pakistan and International Monetary Fund (IMF) talks on seventh review under the Extended Fund Facility (EFF) may continue to linger due to Prime Minister’s Relief Package and political uncertainty in the country.
This was stated by former Finance Minister Dr Hafeez Pasha while speaking to Business Recorder. He further stated that in his opinion the IMF will wait for the political situation to settle down before setting targets and performance actions for the eighth and ninth reviews.
Finance Minister Shaukat Tarin during the press conference on Sunday had stated that policy level talks would conclude by Tuesday.
When contacted an official of Finance Ministry expressed his ignorance about talks and stated that the secretariat was closed for three days. He added that Finance Minister may have held talks with the Fund from his home.
Pasha expressed skepticism about the successful conclusion of talks on seventh review any time soon citing political uncertainty, Prime Minister’s relief package, tax amnesty scheme for industrial sector and increase in debt repayments as major impediments. He contended that the Fund may suggest imposition of personal income tax immediately instead of in the budget for next fiscal year as scheduled in the sixth review with the objective of offsetting some impact of the relief package on budget deficit otherwise deficit would be significant for the current fiscal year.
Pasha said Rs 30 per litre subsidy is being provided on petrol and diesel under the PM package, which means Rs 40-50 billion monthly and IMF may ask from where the financing of Rs 300 billion for the package would come. Pasha added that there is no room for a further slash in development expenditure because it has already been reduced to Rs 600 billion for the current fiscal year.
Pasha also pointed out that increase in debt repayment would also be a cause of concern for the IMF as despite significant decrease in current account deficit, there was also a decline in State Bank of Pakistan (SBP) reserves during the period. Hafeez Pasha also expressed concern that growth was being overstated as furniture share in LSM stood at 0.5 percent but its growth was shown at 550 percent.
He said the government decision to reduce Rs 5 per unit cut electricity tariff when circular debt of power sector has gone beyond Rs 2.5 trillion would be difficult to justify during talks with the Fund on seventh review. Additionally, he said defending tax amnesty scheme for industrial sector would be very challenging for the government.
Adviser to Chief Minister Punjab on Economic Affairs, Dr Salman Shah and former Adviser Finance Ministry Dr Ashfaque Hassan also concurred with Dr Pasha that political uncertainly may be one of impediment for delay in lingering of seventh review as Fund may not be in a position to take risk for setting performance actions and targets for the next reviews.
Dr Shah said every review had different issues and accordingly performance actions and targets are discussed for the next reviews. Additionally, he said the opposition criticism about the conditions of the programme was also known to the IMF.
Salman Shah added that Fund may be seeking clarification about subsidy financing if electricity tariff are not being increased to know from where the funds would come whether. He explained that market-based exchange rate and reducing primary deficit to zero are performance criteria for the IMF programme
Former adviser Finance Ministry Dr Ashfaque Hasan Khan said that how the IMF can agree something with one government amid political uncertainty that may not be acceptable to another government if no-confidence motion against the Prime Minister become successful.
The story was originally published in Business Recorder on March 25, 2022.
