Hectic lobbying in the International Monetary Fund’s (IMF) headquarters and a closed-door one-on-one meeting between Finance Minister Ishaq Dar and the IMF mission chief helped Pakistan to qualify for a $1.1-billion loan tranche after progress could not be made during earlier talks.
Background discussions with officials of the Ministry of Finance revealed that during the recently concluded talks, things had got stuck at one stage. The sitting held for the fourth and fifth economic review under the $6.7 billion loan programme continued from October 30 to November 8 in Dubai.
There was no convergence of views on some issues during the technical-level talks, officials said. Pakistan’s delegation was led by Finance Secretary Dr Waqar Masood and the IMF team was led by its Mission Chief to Pakistan Jeffery Franks.
However, the situation turned to Pakistan’s favour only after the finance minister lobbied in Washington and held a closed-door meeting with Franks for over one and a half hours, winning an extension of three more months to deliver on outstanding issues.
The IMF had doubts about the government’s ability to meet this year’s budget deficit target due to non-realisation of Rs145 billion from the Gas Infrastructure Development Cess (GIDC) and the increasing size of energy sector payments that remain outside the budget.
The IMF also sought a firm timeline to clip the Federal Board of Revenue’s powers to issue Statutory Regulatory Orders (SROs), said the officials.
The government also could not deliver on the targets of reducing its borrowing and building foreign currency reserves and got three concessions for a successful conclusion of the fourth and fifth reviews. It will have to meet these targets.
The IMF board is expected to meet on December 17 to approve the next loan tranche of $1.1 billion.
The government got the lifeline on the promise that it would work on the outstanding issues by the time both sides engage for the sixth review of the economy, which will take place early next year.
Ministry of Finance spokesman Rana Assad Amin was not available for comments. However, a senior official of the ministry said there was no dramatic intervention by Dar, as some of the issues were always resolved during policy-level talks, led by the finance minister.
One of the main concerns of the IMF was that due to a stay order granted by courts, the government would not be able to collect Rs145 billion on account of GIDC that amounted to 0.5% of gross domestic product. Pakistan has assured the IMF that it will try to get the order reversed from the court.
During first quarter (July-September) of the current fiscal year, the government could collect only Rs7.5 billion in GIDC. The officials said the IMF wanted the government to have a backup plan including an increase in gas prices to the extent that it was able to generate Rs145 billion by the close of current fiscal year.
They said the IMF was also concerned about the circular debt that remained outside the budget books and called for determining a maximum threshold of the debt to bring more transparency in fiscal operations.
The IMF also asked the government to bring an amendment to relevant laws to withdraw the FBR’s powers to issue the SROs. However, the government has expressed its inability to immediately introduce legislation in parliament, as it lacks a majority in the Senate.
It has assured the IMF that the legislation can be introduced after March next year when the government will be in a position to get its bills passed from the Senate. In case there is a delay in withdrawing the SRO powers, the World Bank’s next loan of $500 million might be delayed, said the officials.
The IMF was also of the view that the FBR could not achieve this year’s revenue target of Rs2.810 trillion. Either the government will have to take new measures or cut the development budget to cover the shortfall in revenues. The anticipated shortfall in tax revenues is approximately Rs150 billion.
Published in The Express Tribune, November 20th, 2014.
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COMMENTS (14)
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ET please allow response to someone who has written to me.
@Ranjha: I live in USA and was born and raised in India. I have never claimed differently.
We are showing hight of our concerns but not reducing the consumption of imported goods, playing our part would enable us criticize Govt.’s wrong decision fairly.
@Gp65:
You are indian one day, American the other. You swing both ways!
@Gp65: I am aware of the background to this loan, that it was delayed due to non compliance of conditions and targets not being met by the Government. The biggest problem with Pakistan is transparency issues in regards to the data they provide and create.
@Gramscian: The courts are losing their stature. Army must control the deteriorating situation.
GO NAWAZ GO.
Details should be made public afterall we are the ones who would be paying this through our noses.
@Hedgefunder: this is not a new loan. The loan was approved last year. But due to a. Poor record of executing reforms, the disbursal of loan has been split into 12 equal parts and each part will only be dispensed upon succesful completion of prior reforms.
Last year the forex was dropping precipitously - something thsi overnment inherited. In fact at a point it was less than one month of imports.
Btw, I am an Indian and by no means a fan of PML-N
FBR continues to fail the nation
We all have very high hopes in the Tax Reform Commission and pray and hope that they will make very powerful and far reaching recomendations to re-structure FBR
A Rs. 150 billion shortfall is quite disappointing really. I genuinely hope people especially rich people will start paying their fair share especially when things are getting better now. The US- Pakistan relations, Afghanistan-Pakistan relations and the economy is starting to get better with low inflation, lower interest rate, etc, etc.
Government's only policy, keep taking loans. They should increase tax collection from rich.
'Pakistan has assured the IMF that it will try to get the order reversed from the court'.
Only in countries like Pakistan, where judiciary is also in rulers' pockets, can a government official 'assure' such an outcome. And then judges complain when they are rightly criticized. Alas, no institution of Pakistan is safe from these thugs.
This is not an achievement for Pakistani Government, but it shows as to their lack of ability to manage their economy. This is simply a loan to pay your bills and it will have to be repaid with interest by future generations ! Shame on the Managers of Pakistan, to burden its people with further loans and interest charges due to their flawed policies of self interest !
Bravo Dar! You made us a proud begger
Tete-a-tete. Wow, you make the munshi sound like a power broker in financial circles! Does he even know the present value formula?