IMF sign. PHOTO: FILE
ISLAMABAD: Pakistan and International Monetary Fund on Thursday established the first high-level contact after their failure to reach a staff-level agreement with chances of winning a bailout programme by mid of next month remaining very low.
Finance Minister Asad Umar and IMF’s Washington-based mission chief Harald Finger made a visual contact – for the first time since November 20, according to officials of the Ministry of Finance. Both the sides discussed the developments that took place during three weeks.
However, sources said Pakistan’s desire to get the loan approved by January 15 might not be fulfilled, as the Fund wanted Islamabad to adopt steeper measures before its case was sent for approval to the Executive Board of the IMF.
Talks between Pakistan and the IMF remained inconclusive last month after both sides could not bridge the gulf on issues of increase in electricity prices, hike in interest rate, rupee devaluation and tax collection targets.
At that time, Pakistani officials had claimed that the staff-level agreement could be reached before Christmas holidays and Pakistan could request the IMF to send its case to the next board meeting, tentatively scheduled for January 15.
Both the sides showed flexibility and talks were held in a more conducive environment than last month, said a senior official of the ministry.
The finance minister informed the IMF mission head about developments on exchange rate and monetary policy.
The State Bank of Pakistan devalued the currency by Rs4 or 3.0 per cent to Rs137.7 to a dollar. It also increased the interest rates by 1.5 per cent to 10 per cent.
The sources said that the IMF welcomed both the decisions but urged Pakistan to continue these necessary actions to address the external sector imbalances. The IMF wanted further adjustments in the exchange rate and monetary policy, said the sources.
During the video conference link, both the sides also discussed the issue of increase in the electricity prices that remain unimplemented. The IMF was demanding 22 per cent further increase in electricity prices to address the issue of the circular debt. The PTI government already increased the electricity prices by Rs1.27 per unit but its notification had not been issued yet.
The contact was established the day Pakistan’s stock market again nosedived and shed 1,002 points. The State Bank of Pakistan also released the end November position of the foreign exchange reserves, also depicting a gloomier picture.
As of November 30, the foreign currency reserves held by the SBP were recorded at $7.5 billion, down $560.3 million in just one week. The central bank attributed the decrease to the external debt servicing and other official payments.
Last month, Pakistan had received $1 billion from Saudi Arabia out of the $3 billion cash commitment. It took no time to consume half of the borrowed money.
The sources said the SBP dumped dollars in the market to defend the rupee after it could not properly handle the decision to devalue the currency against the US dollar.
On Friday, the central bank allowed the banks to devalue the rupee by Rs10 or nearly 7.7 per cent. But subsequently, it decided to partially reverse the decision that cost it dollars.
A day before establishing contact with the IMF, Finance Minister Umar laid down the conditions on which Pakistan would sign the programme. “There can be an IMF programme that may not be in the interest of the country and there could be another one that is in its interest,” said Umar during an interview with Aaj TV on Wednesday.
He also criticised the IMF over the wrong design of the last programme, which led to a decline in the exports. “What was the IMF doing when Pakistan was heading towards destruction,” questioned Umar during the interview.
But the situation remains volatile, as investors are not receptive to the government’s dual policy on dealing with the IMF.
The government has not yet won concrete commitments from the United Arab Emirates while China has also not given any cash so far.
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