IMF talks on Oct 4 for release of $1b tranche

Successful negotiations would facilitate immediate disbursements of $1b by the global money lender

ISLAMABAD:

The International Monetary Fund (IMF) has appointed a new country head for Pakistan ahead of high-stake talks for the release of $1 billion loan tranche and holding a comprehensive review of health of Pakistan’s economy under Article-IV.

Pakistan and IMF will hold staff-level discussions from October 4 to decide the thorny issues like further increase in electricity tariffs and approval of a highly controversial State Bank of Pakistan (SBP) Amendment Bill 2021 by the Parliament, the government sources told The Express Tribune.

The successful conclusion of the talks would facilitate immediate disbursements of $1 billion by the IMF and another $1.6 billion by the Asian Development Bank ($600 million) and the World Bank ($1 billion) over the course of the current fiscal year.

Neither the finance ministry nor the IMF gave comments and preferred to officially remain tightlipped.

Finance Minister Shaukat Tarin has already announced to visit Washington from October 11 to 17 to hold talks with the top IMF management on sidelines of the annual meetings.

The discussions will take place amid deterioration in Pakistan’s relations with the West and threats to a fragile external sector stability of the country’s economy.

Despite the changing global scenario, the IMF will accept the government’s programme and the review talks will be successful, said Dr Nadeem ul Haque, Vice Chancellor of Pakistan Institute of Development Economics and a former official of the IMF.

A Spanish national Esther Perez Ruiz will replace the outgoing resident representative Teresa Daban, sources told The Express Tribune. Teresa, also a Spanish national, will complete her extended term by November.

Esther has served as a senior economist at the European Commission, and as economic advisor to senior management at the Spanish Ministry of Finance. She holds a masters and M.Phil. in Economics from the University of Valencia, Spain.

This time both the sides have also decided to hold Article-IV discussions, which are broader in scope and will allow the IMF to have a detailed review beyond the scope of the conditions agreed for the 6th review of the economy, the sources added.

The last Article-IV review had been completed in 2017, which had heavily focused on Pakistan’s economic and commercial ties with China in addition to gauging the future stability of the economy.

The periodical Article-IV reviews of the member states are considered important and a positive report of the Article-IV is considered critical to keep the doors for borrowing from foreign capital markets and multilateral lenders open.

Sources said instead of an earlier plan to hold discussion from the last week of September, the IMF has now conveyed October 4 as the new date for holding staff-level discussion for completion of the pending 6th review of the economy.

The successful completion of the review will pave the way for the release of the $1 billion loan tranche under the $6 billion programme that as per original schedule will expire in September next year.

Pakistan and the IMF had failed to achieve a consensus in June this year for the completion of the 6th review due to serious differences over increasing electricity prices and levying more taxes.

Sources said that during the recent interaction, the IMF had conveyed that Pakistan would have to increase power tariffs, as the staff could not budge from its position taken before the management and the IMF Board.

The IMF Board meeting scheduled for July 7 had been postponed after Islamabad did not accept the harsh conditions.

In June this year, Tarin told a parliamentary committee that there were two outstanding issues of introducing Rs150 billion worth of personal income tax and Rs4.95 per unit increase in electricity prices.

Tarin said the IMF demanded that the government should increase Rs1.39 per unit price in June and Rs3.56 per unit in July.

The PTI government increased the average power tariff by over 40% or Rs4.72 per unit to Rs16.44 in the last three years, according to Additional Secretary Power, Waseem Mukhtar.

On Monday, Mukhtar informed the power committee that Nepra had determined an increase of Rs3.34 per unit in base tariff, of which Rs1.95 per unit was passed on to the consumers in February this year but Rs1.39 per unit is still pending.

Sources said the IMF was asking to enforce the remaining pending increase to make the power sector financially viable.

The power sector circular debt has jumped to Rs2.324 trillion as of July 31, 2021, which is more than double as compared to three years ago, and despite increasing electricity prices.

Pakistan has budgeted over Rs400 billion or $3.1 billion from the IMF in this fiscal year and its disbursement is only possible with the completion of the remaining reviews.

Sources said that another important outstanding issue was the approval of the SBP Amendment Bill 2021 from the Parliament.

For the sake of the last tranche of $500 million, the federal cabinet had approved sweeping powers for the central bank in a haste which unnerved many quarters.

The federal government had agreed to give absolute autonomy to the SBP, freeing it from responsibilities of supporting economic growth and providing budgetary loans to revive the stalled programme.

According to the cabinet’s approved draft, the federal government cannot make legislation without consulting the SBP.

The definition of “monetary liabilities” has been introduced, which means total liabilities of the bank as reduced by the sum of “deposits of the government, amounts owing to the IMF, the World Bank, the Asian Development Bank (ADB) or other such instruments, deposits of foreign central banks or sovereign wealth funds, utilised swap lines of foreign central banks and balance of participant central banks under any clearing union”.

The sustainability of the FBR’s revenue collection, privatisation programme and the future external financing needs of Pakistan would also come under discussion.

The SBP had raised serious issues in its last policy statement, pointing out fingers towards expansionary fiscal policies.