Visitors are silhouetted against the logo of the International Monetary Fund at the main venue for the IMF and World Bank annual meeting in Tokyo. PHOTO: REUTERS
“At the request of the (Pakistani) authorities, an IMF mission will be going to Pakistan before the end of April to continue the discussions,” said a statement of Office of the Resident Representative of the IMF.
It added that the Pakistani authorities and the IMF staff held constructive discussions during the IMF-World Bank (WB) Spring Meetings in Washington DC towards an IMF-supported programme.
Hours before the IMF communiqué, Umar told the National Assembly Standing Committee on Finance and Revenue that Pakistan and the IMF have in principle reached an agreement on all policy matters.
But the finance minister refused to divulge details of the IMF conditions, saying it could ‘jeopardise the negotiations’. After the committee meeting, the minister did say the electricity prices would go up “due to idle capacity payments left behind by the PML-N [Pakistan Muslim League-Nawaz] government.”
“Both the sides have documented the agreement and an IMF mission would arrive in Islamabad this month to sort out technical details. The expected size of the IMF loan will be $7.5 billion to $8 billion,” Umar added. The dates of the IMF visit will be finalised in the next couple of days.
Umar said the agreement has been achieved on the budget deficit, exchange rate management, energy sector, state-owned enterprises, and public finance management.
The finance minister insisted that the IMF’s conditions would not burden the poor. The people are facing problems due to the mess left behind by the PML-N, he said.
Umar said the National Electric Power Regulatory Authority (Nepra) would periodically increase the electricity prices to pass on the impact of idle capacity payments to the Independent Power Producers.
But sources said it is a condition of the IMF, as the government was initially against the proposal to bridge the gap between electricity generation cost and consumer price through administrative measures.
The finance minister said in addition to the IMF lending, the programme loans from the World Bank and the Asian Development Bank (ADB) would also resume once the IMF programme is approved.
Both the multilateral lenders have suspended Pakistan’s budgetary support due to deterioration in macroeconomic conditions. The minister said the three multilateral lending agencies are expected to give a total package of nearly $22 billion in the next three years. He said the WB lending could reach to $7.5 billion in next three years while the ADB may also give over $6 billion in loans.
Pakistan and the IMF have remained engaged for the last eight months and the upcoming IMF staff level mission would finalise the programme. But the conditions that the IMF has imposed in return of the bailout appeared stringent that would keep the PTI government on its toes.
It will also be difficult to approve new legislation due to a thin majority of the Pakistan Tehreek-e-Insaf (PTI) in the National Assembly and its minority status in the Senate. Umar said the international capital markets are also receptive to the government’s economic reforms programme and Pakistan may issue a bond either towards the end of this fiscal year or at the start of the next financial year.
Umar said the foreign currency reserves that have so far remained under pressure would soon start building up after approval of the IMF loan. The members of the standing committee asked the finance minister to share the details about the targets agreed with the IMF.
“The government cannot share the details until completion of the negotiations, as this could jeopardise the whole programme,” he said.
After the meeting, Umar said in the next fiscal year there will be a primary balance on the budget that will be achieved on the back of enhancing revenue collection.
The government’s revenues are not even sufficient for debt servicing. Heavy taxation under the IMF programme may further hurt the economic growth, said the PML-N’s Qaiser Ahmad Sheikh.
But Umar reiterated that it is the IMF that changed the position while accepting Pakistan’s stance. He said the IMF has now admitted that the economy has responded to the government’s policy actions.
Umar said there is no link between the IMF programme and the Financial Action Task Force (FATF). He said the government has prepared its draft report that would be sent to the FATF on Monday.
He said the report would become the base for Pakistan’s second review that will take place in the third week of May. The minister said this time the FATF would hold a review in Pakistan and would meet the stakeholders.
Umar said the stabilization phase would continue under the IMF programme and if the government tried to end it prematurely this could result in the recurrence of high current account and budget deficits.
“$9.2 billion financial assistance by China, Saudi Arabia, and the United Arab Emirates provided a breathing space that was utilized to negotiate a better deal with the IMF,” he added.
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