Premature to say IMF talks have failed; announcement to be made by IMF itself: sources

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ISLAMABAD: Pakistan has accepted most of the International Monetary Fund’s (IMF) new conditions and any reports that talks have failed are “premature” at this stage, sources within the Ministry of Finance said on Saturday.

The sources said Pakistan will have to ensure the implementation of a privatization programme to secure the IMF loan programme.

According to the sources, Pakistan will have to comply with the IMF’s new conditions if it wanted the loan programme to be restored.

“The IMF suggested that we review our economic targets and comply with conditions related to the power sector reforms,” they said.

The government will have to take measures to increase tax revenue, the sources said, adding that the IMF has rejected the ministry’s plan and imposed conditions that would see an increase in interest rates and fixing the market rate of the dollar.

The IMF board will make the final announcement regarding the loan program, according to the ministry’s spokesperson.

Earlier reports

The statement came after a report published in daily The News on Saturday had suggested that Pakistan and the IMF had failed to finalise the Memorandum of Economic and Financial Policies (MEFP) that would have concluded the Sixth Review under a $6 billion Extended Fund Facility (EFF)

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

For one, the State Bank of Pakistan’s foreign currency reserves have decreased by $1.6 billion in the last two weeks as Pakistan paid back $1 billion on the maturity of an international sukuk bond.

On the other hand, inflation is rising, with the Sensitive Price Index (SPI) standing at 14.5% this week —  up 1.4 percentage points in the last one week period. 

Adjustments made on fuel and electricity prices as well as the devaluation of the rupee against the dollar were responsible for the increase in inflationary pressure.

There is danger that inflation may rise further, as the Wholesale Price Index (WPI) stood at 19.6% for September 2021 on a month-on-month basis. When this trickles into the retail stage with a time lag, it might hike CPI-based inflation.

Meanwhile, 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. 

Why the deadlock?

When inquired why there was a deadlock despite claims made by Pakistan’s economic team that “they were very close” to an 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 its five-year period, the government has 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 PIA and 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 start depleting, it would be difficult to control the dollarization of the economy. With POL prices crossing $84 per barrel, inflationary pressures are bound to increase further. 

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

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