Pakistan, IMF fail to agree on MEFP

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Pakistan and the International Monetary Fund (IMF) have not finalised the Memorandum of Economic and Financial Policies (MEFP) for the completion of the Sixth Review under the $6 billion Extended Fund Facility (EFF). 

The government has found itself in a very tough situation concerning the international money lender’s situation. There are risks attached for Pakistan either with or without the IMF loans. 

For one, the State Bank of Pakistan’s foreign currency reserves decreased by $1.6 billion in the last two weeks as Pakistan had paid $1 billion on maturity of the international Sukuk Bond.

On the other hand, inflation is rising as the Sensitive Price Index (SPI) stood at 14.5% this week as it increased by 1.4% in the last one week period compared to the last week. The adjustments made on POL and electricity prices as well as the devaluation of the rupee against the dollar jumped up the SPI by 1.4% in the one-week period.

The devaluation of the rupee has played havoc with the economy, making the lives of fixed and low-income groups really miserable. There is another danger that inflation may further go up as the Wholesale Price Index (WPI) stood at 19.6% for September 2021 month-on-month basis, so when it would translate into the retail stage, it might hike the CPI-based inflation with a certain time lag.

Adviser to the PM on Finance and Revenues Shaukat Tarin has left Washington to visit Saudi Arabia. He will become part of the official entourage of Prime Minister Imran Khan, who is also scheduled to visit the Kingdom of Saudi Arabia.

When contacted, IMF Resident Chief in Pakistan Teresa Daban Sanchez in her brief reply on Friday stated, “Still working on it”. Official sources told The News that the ball is now in the IMF’s court, so it remains to be seen in the coming days how the Fund decides to proceed further. But the secretary of finance was still in Washington, DC on Friday till the filing of this report.

Why the deadlock?

When inquired why there was a deadlock despite claims made by Pakistan’s economic team that “they were very close” to the agreement, sources said that in the aftermath of the last budget for 2021-22 and increased international prices, all macroeconomic targets became irrelevant, so massive adjustments were required on the fiscal, monetary and exchange rate fronts. 

At the twilight of the government’s tenure, when one-and-a-half years are left till the completion of the five-year period, the government found it difficult to make massive adjustments on all economic fronts. The IMF wants progress on the privatization front in order to sell out loss-making entities such as the PIA and the Pakistan Steel Mills. The Fund also wants the power sector viable and wants to see DISCOs privatised.

Without the IMF program, if the foreign currency reserves started depleting, it would make it difficult to control the dollarization of the economy. Economists were amazed over the rising POL prices, which had crossed $84 per barrel, so inflationary pressures were bound to increase further. 

The PTI-led government plans to announce a massive subsidy program it remains to be seen how it will be funded.

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