Pak-IMF deal may be announced tomorrow

An inflationary budget loaded with taxes will be unveiled on June 11

ISLAMABAD: The government and the International Monetary Fund (IMF) are likely to announce a staff-level agreement tomorrow (Friday) as the former has accepted most of the global lender’s demands -- earlier termed harsh -- that will lead to the unfolding of an inflationary budget loaded with taxes on June 11.

Both sides will hold the last round of talks today (Thursday) in which the remaining issues of the fiscal deficit and primary balance will be finalised, sources in the Ministry of Finance told The Express Tribune.

They added that the country did not have any other option but to concede to the IMF’s demands to remain afloat.

Pakistan and the IMF have started exchanging the proposed draft of the Memorandum of Economic and Financial Policies that will become the base for the three-year programme.

It is expected that the loan size will be equal to about 225% of Pakistan's quota or $6.5 billion.

The country already owes $5.8 billion to the IMF on account of previous loans. If all the issues are resolved by Thursday evening, Pakistan and the IMF will sign their 22nd programme on Friday.

“Unlike in the past, the IMF should finalise the loan programme keeping in mind the ground realities of Pakistan including the Pakistan Tehreek-e-Insaf's [PTI] representation in both houses of the parliament,” said Senator Shibli Faraz, the leader of the house in the Senate.

Senator Faraz met IMF Mission Chief Ernesto Rigo along with three other legislators at the Parliament House.

They told the IMF official that the conditions set by the global lender for the new bailout package required new legislation and the PTI was not in a comfortable position to have these bills passed from both houses of the parliament.



The IMF mission chief highlighted the grave fiscal position of Pakistan and the privileges that various sectors enjoyed. The withdrawal of these tax concessions and privileges are among the conditions that Pakistan has accepted to secure the bailout package.

Where Pakistan is blamed for being a regular client of the IMF, there has also been criticism against the IMF for imposing conditions on the country that are not sustainable in the longer term. There are also apprehensions that because of the IMF’s tough conditions, the country might not be able to complete the programme.

The sources said that during the last 10 days, IMF Resident Representative Teresa Daban remained persistent in her demand that Pakistan took all difficult measures upfront.

The mission chief at times appeared inclined to give certain concessions but Daban did not agree to that, the sources said.

Budget date

It has also been decided that the budget for the next fiscal year would be announced on June 11 as the Federal Board of Revenue (FBR) has expressed its inability to prepare tax proposals by May 22, which was the earlier date set for the budget announcement.



The Ministry of Finance has sent a summary to the prime minister for approving June 11 as the new date for unveiling the budget, according to a senior official of the ministry.

It is expected that with the IMF’s harsh conditions, the next budget will unleash a wave of inflation. The IMF has not budged from its demand that the government should impose heavy taxes equivalent to 1.7% of the GDP, the sources said.

The FBR had proposed that the new taxes should be equal to slightly 1% of the GDP and rest of the amount could be collected through enforcement measures. However, the proposal was turned down by the IMF.

The administrative affairs in the FBR have gone haywire during the past five days after Prime Minister Imran Khan announced the appointment of Shabbar Zaidi as the new chairman of the board.

The decision has not gone down well with the FBR’s senior officials, who met Adviser to the PM on Establishment Shehzad Arbab.

The FBR officials conveyed their reservations against Zaidi's appointment during the meeting, including the conflict of interest that arose from the development. However, the officials were plainly told that it was the prerogative of the prime minister to appoint anybody as the FBR chairman.

The officials told the adviser that in the majority of corporate cases, Zaidi's firm, AF Ferguson, was in a dispute with the FBR. They also expressed their reservations over the government’s continuous bashing of the tax machinery. They complained that the prime minister had not taken the FBR stakeholders into confidence before making the decision.

The outgoing chairman, Jehanzeb Khan, did not attend his office on Wednesday and spent his day at the Islamabad Club in his capacity of its administrator.

The outcome of the adviser’s meeting with FBR members suggests that they will not observe a strike against Zaidi's appointment. Nevertheless, its officers will pursue a legal path by challenging the appointment in the Islamabad High Court (IHC) or the Sindh High Court, a senior FBR member told The Express Tribune.



Establishment Division Secretary Dr Ijaz Munir has already informed the federal cabinet that the decision to appoint Zaidi was tantamount to the contempt of the IHC. In a judgement in June 2013, the IHC had declared that the FBR chairman could not be appointed from the private sector without ensuring a competitive process.

The prime minister has made surprising decisions during the past three weeks, including removing finance minister Asad Umar and State Bank of Pakistan (SBP) governor Tariq Bajwa.

Umar accepted the chairmanship of the National Assembly Standing Committee on Finance on Wednesday after refusing to become the federal energy minister.

The prime minister has appointed Dr Reza Baqir, who until last week was the IMF's top man in Egypt, as the SBP governor.

The sources said the Pakistan-IMF talks received a major boost after Baqir joined the negotiations this week.

They said both sides reached an understanding on certain issues that remained unresolved during Bajwa's time.

Now it is expected that the central bank would ask the government to seek budget financing from commercial banks instead of heavily relying on the SBP. The government's borrowings from the central bank have already hit a record Rs7.4 trillion by the end of March.

The new SBP governor will also ensure that the central bank does not frequently intervene in the exchange rate market and the value of the rupee is determined by market forces instead of the federal government.

In future, the SBP's monetary policy stance will be to keep the real policy rate positive to anchor the inflationary expectations in a forward-looking manner. The central bank will continue to closely monitor the recent macroeconomic developments and their unfolding impacts on inflation, and will be ready to take further necessary actions if required.

As per the understanding with the IMF, over the medium-term, the SBP will gradually move towards a flexible inflation-targeting framework. In such a framework, more weight will be assigned to inflation as a nominal anchor without prejudice to growth.

The SBP will also eliminate existing exchange restrictions under Article VIII of the IMF's Articles of Agreement. The central bank will bring an end to foreign exchange restrictions on advance import payments against the letters of credit and other administrative measures taken in the recent months to contain pressures on the balance of payments.

The SBP will prepare a more detailed plan to achieve compliance of all banks that fall below the minimum capital adequacy ratio.