Talks with IMF enter key phase

Discussions for $1 billion loan tranche expected to conclude on Thursday

ISLAMABAD:

Talks between Pakistan and the International Monetary Fund (IMF) for $1 billion loan tranche and an agreement over next year’s budget have entered into a crucial phase, as the Fund has asked Islamabad to immediately get the Nepra Ordinance passed from the Parliament.

The government will try to get the National Electric Power Regulatory Authority (Nepra) law approved from the national assembly within this week to remove a major hurdle in talks, sources in the Ministry of Finance and Ministry of Energy told The Express Tribune.

The IMF is holding talks under the sixth review of the $6 billion three-year bailout programme that are expected to conclude on Thursday, said the sources. They said that subject to reaching an agreement over the sixth review (January-March period) and next fiscal year’s budget, the IMF will also issue a press statement.

“The IMF team and the Pakistani authorities remain engaged in conducting technical virtual meetings regarding the sixth review under the EFF (Extended Fund Facility),” said IMF Resident Representative Teresa Dabán Sanchez.

The successful culmination of talks will pave the way for approval of over $1 billion loan tranche by the IMF Executive Board besides winning the seal of approval for the next budget that the government plans to roll out on June 11.

The original schedule for the sixth review talks was for April-June period and the parleys had to take place in September for $750 million tranche. However, the IMF advanced the calendar and also enhanced the tranche size after the Fund programme remained suspended for one year.

Sources said that the power sector, taxation issues and the quantum of gross external financing needs for the next fiscal year remain major outstanding issues. They said that the IMF has asked Pakistan to bring a permanent legislation to empower Nepra to automatically increase electricity prices.

In order to qualify for the last loan tranche of $500 million, the Pakistan Tehreek-e-Insaf (PTI) government had promulgated a presidential ordinance in March this year, which will lapse next month.

The government was working on getting the Nepra Ordinance passed by the national assembly this week, and then by the Senate at the earliest, the Power Division sources said.

Under the IMF agreement, the government was required to get the Nepra Act passed by the parliament in March. After the promulgation of the ordinance, the Nepra has got the powers to ensure the automaticity of quarterly tariff adjustments (QTAs) and the government also got back the authority to levy surcharges on electricity consumers.

The ordinance has given powers to the government to impose a new surcharge equal to 10% of the electricity revenue requirements or Rs1.40 per unit, which the IMF now wants to be permanently covered through act of the parliament. The life of an ordinance is only four months, which can be extended further for another four months, only.

The ordinance had also given effect to implementing the Circular Debt Management Plan, approved by the cabinet in March this year.

The circular debt management plan had worked out the power tariff increase by Rs5.65 per unit in six phases to recover an additional Rs884 billion from consumers from April 2021 through June 2023. However, Special Assistant to Prime Minister on Power Tabish Gohar had said that the tariffs would be increased only if the government could not improve efficiency and reduce the generation cost through other available means.

The officials said that Pakistan and the IMF have not yet converged over the external financing needs for the next fiscal year. The IMF has projected $25 billion gross financing needs for next fiscal year in its last report, which it now sees increasing further due to the government’s plan to achieve 5% economic growth rate. They said the IMF was projecting relatively higher imports.

Pakistan wants to remain in the IMF programme due to its growing external financing needs that cannot be met without getting new loans from the IMF, the World Bank and the Asian Development Bank.

The IMF also sees higher domestic financing needs for the next fiscal year, as its projections for the budget deficit were higher than what the government was anticipating, said the sources.

Special Assistant to Prime Minister on Revenue Dr Waqar Masood Khan had told a parliamentary committee that next year’s overall budget deficit target was 6.3% of GDP on back of anticipated savings of Rs570 billion by the provinces. However, the parliamentarians had termed these projections unrealistic due to what they called unrealistic FBR targets.

The government has showed willingness to withdraw those tax exemptions that would not fuel food inflation, said the sources. Prime Minister Imran Khan remains concerned over high prices, which is also a reason for Pakistan’s reluctance to further increase electricity prices and impose taxes.

During the talks, IMF would also see the health of the foreign exchange reserves held by the central bank. The SBP was required to restrict its reserves negative $10.2 billion under the deal by retiring some of the loans on its balance sheet.

Published in The Express Tribune, June 8^th, 2021.

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