IMF approval likely by March 24

ISLAMABAD:

The International Monetary Fund (IMF) may finally revive Pakistan’s stalled loan programme on March 24 as the government rushes to show progress on over two-and-a-half-dozen conditions after keeping those pending for over a year.

The IMF executive board could meet in the fourth week of current month to approve Pakistan’s request for completion of second to fourth reviews and modify many performance criteria and structural benchmarks that have been agreed at the staff level, said sources in the Ministry of Finance.

The approval of four reviews and readjustment of deadlines to deliver on some of the pending conditions would pave the way for the release of third loan tranche of $500 million, they added.

Total disbursements by the IMF after approval of the next loan tranche will be close to $2 billion out of the $6 billion programme.

However, Prime Minister Imran Khan’s decision to delay some critical decisions in January last year has not only increased workload of the key ministries involved in the IMF programme but has also led to hasty decisions, the sources said. Official documents showed that Pakistan was required to make progress and implement at least 32 major conditions to get the programme revived.

These conditions were aimed at bringing reforms to key areas which included power supply, tax collection, fiscal management, reduction in losses of government-owned companies, giving autonomy to the central bank, National Electric Power Regulatory Authority (Nepra), Oil and Gas Regulatory Authority (Ogra) and increasing cost of utilities.

In April last year, the IMF had cancelled a scheduled board meeting after PM Khan refused to increase electricity prices and introduce mini-budget despite a commitment given by the finance ministry.

The delay in implementation of these conditions added to the burden on government ministries that were now either shortening the approval process or bringing incomplete summaries, said the sources.

For instance, one of the conditions of the IMF was to streamline and rationalise power subsidies. The Power Division tabled a summary in the Economic Coordination Committee (ECC) of the cabinet, which mentioned only principles of rationalisation without giving specific details.

The ECC has now given March 31 deadline to the Power Division to complete the task.

Those structural benchmarks that would remain incomplete by the end of current quarter would become conditions for the approval of sixth review of the IMF programme, likely to take place in July, said the sources.

The IMF has also imposed a condition to review and rationalise subsidised lending to the exporters. The purpose is to make sure that all the exporters are equally treated and unwarranted subsidies in the shape of reduced taxes and cheaper loans are withdrawn.

Benefits of export refinance facilities are limited to a few sectors, mainly textile, which have not helped Pakistan over the last three decades. The commerce ministry has completed a study on the subsidy regime for the exporters and will now start the process of rationalisation. Under another IMF condition, Pakistan is required to adopt a new national tariff policy.

Due to delay in taking many important decisions, a critical legislation - the State Bank of Pakistan Amendment Act 2021 - has not been debated in the federal cabinet despite its severe implications for Pakistan’s economy. The introduction of the SBP bill was a prior action of the IMF, which the government met by rushing the legislation.

“The finance ministry thoroughly discussed the SBP bill before taking it to the federal cabinet,” said Finance Secretary Kamran Afzal, while denying that the bill was passed by the cabinet in haste.

Another IMF prior action is approval of the Nepra Act that would empower the federal government to impose electricity surcharges in order to pass on the inefficiencies of power sector to the end-consumers. This law is stuck in the National Assembly Standing Committee on Power and the government will give another push today (Thursday) to get it passed.

The IMF had also imposed a condition to introduce the State-owned Enterprises Bill 2021 to efficiently run the government sector companies. The Ministry of Finance had started working on the draft a few months ago, which helped it to put together a better piece of legislation.

To implement an IMF condition, the federal government laid the mid-year budget review report in the National Assembly a few days ago.

The government is also required to submit a summary to the Council of Common Interests (CCI) for reassessing the regulatory framework of Nepra. The deadline to implement this benchmark could be readjusted by the IMF, said the sources.

The IMF had also imposed a condition to increase gas prices, which the government did late last year. Ogra has already notified a hike in gas prices for sectors like compressed natural gas (CNG) outlets, power producers, general industry and export-oriented industry.

The increase in electricity prices, both on annual and quarterly basis was part of the IMF conditions. The government has already done that. Similarly, the government has also approved a new budget to meet another IMF prior action.

Some of the other important conditions of the IMF, which the government will be implementing in the coming weeks, are resolution of outstanding tax issues including timely payments of tax refunds to power distribution companies, circular debt management plan, increasing BISP expenditures, ensuring compliance with the electricity consumers service manual to improve service delivery, implementation of track and trace system by the Federal Board of Revenue, processing of refunds of the exporters and improving terror-financing related regulations.

Published in The Express Tribune, March 11^th, 2021.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.