The International Monetary Fund delegation led by Harald Finger visited Pakistan from November 7-20 and held extensive talks with officials after Pakistan formally applied the bailout package, the Finance Ministry said in a statement.
Cash-strapped Pakistan said on Tuesday that “substantive progress” was made with the visiting IMF delegation to develop understanding for financial assistance to address the balance of payment issue, amid reports that the global lender sought complete disclosure of Chinese financial support to the country and hiking of energy prices and levying more taxes. The International Monetary Fund delegation led by Harald Finger visited Pakistan from November 7-20 and held extensive talks with officials after Pakistan formally applied the bailout package, the Finance Ministry said in a statement.
It said the discussions covered all sectors of the economy, as Finance Minister Asad Umar chaired the concluding session with the IMF team on Tuesday. “Substantive progress has been made by the Government of Pakistan and the IMF Mission towards developing a common understanding on the policy and structural reforms framework for the prospective IMF programme, including fiscal and monetary measures, corrective interventions for balance of payments sustainability, pro-poor spending, governance and development of a business-friendly environment,” the ministry said. It further said “positive engagement with the IMF will continue over the coming weeks to finalise the programme with the Fund.” It said that Pakistan acknowledges and appreciates the support that the IMF is providing in achieving the government’s broad-based development agenda aimed at enhancing the social and economic well-being of the people of Pakistan.
The IMF also said that “significant progress” was made toward reaching an understanding on policy priorities and reforms that could be supported by a financial arrangement with it. Finger said the IMF will continue its discussion with Pakistan as the latest meeting in Islamabad remained inclusive, without announcing new dates for the next round of talks. He said there has been broad agreement on the need for a comprehensive agenda of reforms and policy actions aimed at reducing the fiscal and current account deficits, bolstering international reserves, strengthening social protection, enhancing governance and transparency, and laying the foundations for a sustainable job-creating growth path.
As the mission wrapped up its talks, local media reported about key differences between the two sides over the conditions by the IMF. The IMF proposed tough conditions like further increase in energy prices, more taxes and complete disclosure of Chinese financial support for any assistance, Dawn reported.
Finance Minister Umar had acknowledged on Monday that the talks were moving ahead positively but there were still differences. “There are still gaps in the position of the IMF and the position that we have,” Umar said after meetings with the IMF team. He said that USD 1 billion of the USD 3 billion committed by Saudi Arabia had been remitted to the State Bank of Pakistan Monday and the remaining USD 2 billion would follow over the next few days.
Pakistan looks forward to about USD 6 billion financial bailout for averting its balance of payments crisis. Citing its sources, the paper said the two sides had a wide gap in their positions on the need for increase in electricity tariff, upward revision in the revenue target and additional tax measures on matters relating to Chinese assistance and its impact – both inflow and outflow.
The sources said the IMF also demanded that the provincial governments finance the Benazir Income Support Programme (BISP), instead of the federal government, and wanted committed cash surpluses to minimise the consolidated fiscal deficit. The sources said the IMF was insisting on revising the revenue target upward to Rs 4.75 trillion for the current year – more than eight per cent increase from the existing target of Rs 4.39 trillion. Practically, this means raising about Rs 360 billion additional revenue from the remaining seven months of the current fiscal year.
Umar, according to the sources, told the IMF team that the revenue target could be increased at best to Rs 4.5 trillion. Regarding the Chinese financing, he said there was complete transparency in the Chinese assistance and whatever the external debt was would have to be shared with the IMF as part of the programme.
The sources told the paper that the IMF mission wanted a clear roadmap for elimination of power sector circular debt that currently stood at Rs 1.2 trillion and welcomed administrative measures to recover some arrears, but insisted on further increasing electricity rates for full cost recovery of power supply. They said the IMF team was not satisfied with the power sector reforms plan and wanted the government to surrender its powers to set electricity tariff and let these be independently dealt with by the power regulator.
Pakistan’s current account deficit widened 43 per cent to USD 18 billion in the fiscal year that ended in June, while the fiscal deficit has ballooned to 6.6 per cent of gross domestic product. Citing sources, the paper said the IMF was very critical of the fiscal federalism arrangements at present and noted with concern that the Centre had transferred all profitable taxes to the provinces while keeping all necessary expenditures of provincial nature as federal responsibility.
The IMF mission also sought a complete market-based free float of the exchange rate and complete independence to the State Bank of Pakistan. The sources said the IMF also suggested an increase in the GST rate.