Pakistan seeks US help to revive IMF deal

ISLAMABAD:

Pakistan has sought the United States support for the revival of the International Monetary Fund programme, as the global lender has yet to agree to a staff level pact despite the government having taken many difficult steps.

The government’s economic team met with US Ambassador Donald Blome and sought Washington’s support and acknowledgement of the actions taken so far, at least two people familiar with the discussions told The Express Tribune. Blome was apprised about measures that have been taken to revive the programme and bring stability in the economy, they added.

Finance Minister Miftah Ismail and Minister of State for Finance Dr Aisha Pasha met with the US envoy. The US is the largest shareholder in the IMF and has in the past too played a role in helping Islamabad complete the fund’s programme reviews.

The US ambassador was informed that the government has proposed fiscal consolidation equal to 2.2% of Gross Domestic Product despite challenging times.

The Ministry of Finance did not officially comment on the article.

Despite three main rounds of talks, including two by the incumbent government, and multiple virtual contacts, the IMF did not share the draft of the Memorandum for Economic and Financial Policies (MEFP) with Pakistan till Thursday afternoon, according to the sources.

The MEFP forms the basis of any staff level agreement and without finalization of the MEFP no formal staff level agreement can be signed.

The Pakistan-IMF programme remains derailed since March this year after the previous government backtracked from its commitments.

The meeting between the Pakistani and US authorities took place the day the IMF clarified its position on its demand to link the energy payments to the Chinese Independent Power Producers with the concessions that non China-Pakistan Economic Corridor (CPEC) projects had extended to the government last year.

“The IMF did not ask Pakistan to renegotiate CEPC IPP contracts. These claims are simply untrue”, according to a statement that the IMF attributed to its Resident Representative, Esther Perez.

The statement added that “rather, the IMF supports the government’s multipronged strategy to restore energy sector viability which shares the burden of restoring viability across all stakeholders—the government, producers, and consumers”.

Last week, the IMF country head had given a comprehensive statement on its position while responding to The Express Tribune.

Read Fuel prices raised again to unlock IMF funding

The Express Tribune had inquired whether “is it correct that the IMF wants that Pakistan should renegotiate with Chinese IPPs and seek concessions like the country did in case of 1994 and 2002 policy IPPs before settling outstanding dues of Chinese IPPs on account of power purchase payments by Pakistan?”

In its detailed reply last week, the IMF did not deny that it had asked Pakistan to renegotiate. Rather, it made references to Pakistan’s “limited fiscal space” and “concluding renegotiations of the capacity payment terms with over 30 IPPs last year”.

Last week, the IMF country head said that “an important principle underpinning these (power sector) reforms is that all stakeholders contribute in an equitable manner to reduce the circular debt, between the government, IPPs and consumers, while protecting the most vulnerable consumers”.

She had also said that Pakistani authorities “should be cognizant of the limited fiscal space available to clear any outstanding arrears of the sector stakeholders, and thus there should be a trade-off between this and other government priorities, and the potential to unlock lower capacity payments for electricity as part of the aforementioned burden sharing across stakeholders”.

Pakistan owes around Rs300 billion to the Chinese IPPs and the IMF was keeping track of every payment made to them.

So far, 11 Chinese IPPs, set up with an investment of $10.2 billion, are operational, having a total generation capacity of 5,320 megawatts. Out of them, nearly 2,000MW of power plants had been shut due to the depletion of imported coal inventories.

The government is making all-out efforts to revive the programme and has taken many unpopular steps, but still remains short of the IMF’s expectations, said a senior Pakistani negotiator.

The sources said that if no breakthrough is achieved in the next couple of days, the Secretary Finance and the Minister for Finance may dash to the United States to meet the top management of the IMF.

The coalition government had hoped that after increasing the petroleum products prices and starting the process for approval of increase in electricity prices, the IMF may agree to reach a staff level agreement.

However, the IMF also wants not only a reversal of cut in the income tax rates for the salaried class but is seeking to pass on an additional burden of Rs125 billion on the salaried people. The government has now worked out a new proposal that entails reversing Rs47 billion tax relief and then passing on additional burden of Rs18 billion to the salaried class, the sources added.

The previous government had committed to increase the taxes on the salaried class with effect from July and also agreed to share the draft of the personal income tax reforms with the IMF by end of February 2022. The PTI did not fulfill its commitments.

The government has already massively increased the fuel prices and abolished all subsidies. But the IMF is now seeking reintroduction of the petroleum levy and sales tax over and above the existing prices, said the sources.

While talking to the media after the Senate Standing Committee on Finance meeting, Minister of State for Finance Dr Aisha Pasha said that there was now more clarity to the IMF on the new budget, hoping to sign a deal very soon.