IMF talks end without staff level agreement

Two sides agree on a set of measures to help Pakistan avoid looming default

ISLAMABAD:

Pakistan and the International Monetary Fund (IMF) on Thursday failed to reach a staff level agreement within the stipulated time to revive the stalled $6.5 billion bailout package.

However, both the sides agreed on a set of measures that can still help clinch the deal to avoid a looming default.

The Pakistani authorities had hoped that they would convince the IMF about its good intentions regarding implementation of all outstanding conditions in a gradual manner.

But the hopes dashed during the 10-day visit by the IMF mission, which ended on Thursday without a staff level agreement.

The government remained short of providing adequate and convincing assurances to the IMF mission, led by Nathan Porter. Finance Minister Ishaq Dar held back-to-back meetings but remained short of the end-goal to get a staff level deal done.

“Actions and prior actions have been agreed but the staff level agreement will be announced subsequently,” said Finance Secretary Hamed Yaqoob Sheikh, while confirming that the IMF mission would leave early Friday morning.

Due to a credibility crisis, the IMF was not willing to blindly trust Pakistan this time and has set many prior conditions. In order to break the deadlock, an unscheduled virtual meeting was held between Prime Minister Shehbaz Sharif and IMF Mission Chief Nathan Porter.

Dar had to cancel his media briefing due to inconclusive talks hours after he promised to share a good news with the nation before midnight. The news conference might take place today (Friday).

Pakistan urgently needs the staff level deal and subsequent board approval for the ninth review to unlock $1.1 billion, as its foreign exchange reserves slipped to mere $2.9 billion -- the lowest level since February 2014. The reserves are not sufficient to finance hardly two weeks of imports while the country needs at least $7 billion for external debt repayments.

Moreover, as the country’s economic woes multiply, Prime Minister Shehbaz Sharif was busy expanding his cabinet with the number swelling to 85 at a time when the IMF was in the town trying to convince the government to tighten its belt.

“The final set of actions that Pakistan agreed to implement is short of the mandate that the IMF gets from its headquarter to finalise the staff level agreement,” said a senior finance ministry official. “The mission needs the consent of its management in Washington, therefore, there is some delay in the staff level agreement.”

Read Foreign exchange reserves fall below $3b to nine-year low

The government is hopeful that the outstanding work can still be finished in next two to three days. The IMF discussed the draft of the Memorandum for Economic and Financial Policies just before the end of the scheduled review talks, leaving no room for the staff level agreement on the same day.

The staff level agreement is the first but the most important step towards seeking the approval of the IMF board for the completion of the 9th review. It was the failure of the government that it could not timely get the MEFP draft, although the senior official said that the IMF shared the numbers of the MEFP on Thursday.

Earlier on Thursday, Finance Minister Ishaq Dar had said that the “matters will be settled today” (Thursday) with the IMF and that the people will soon hear a “good news”.

One of the stumbling blocks was the huge external financing gap that Pakistan could not meet without the help of the multilateral, bilateral and the commercial creditors.

The senior finance ministry official said that the IMF people met with the ambassadors from those countries that have pledged to give loans to Pakistan.

The IMF was seeking assurances from China, Saudi Arabia and the United Arab Emirates about the materialisation of the loans that they have committed to give to Pakistan.

Saudi Arabia has been studying the prospects to give $2 billion additional loan while Prime Minister Shehbaz Sharif has claimed that the UAE would give $1 billion more. Pakistan had also requested China to give $1.5 billion in additional loans, besides rolling over the existing debt. It is to be noted that China has been withdrawing its commercial loans one after another.

For clinching the MEFP and the staff level agreement, the government eventually conceded to almost every demand put forward by the IMF, but the global lender wanted upfront implantation of the actions.

“The fund rejects the gradual approach proposal of Pakistan by saying that everything has to be done upfront,” according to the sources.

There was a broad consensus with regard to leaving the rupee value to be determined by the market forces, lifting of the restrictions on the imports and allowing the already imported goods to be cleared.

Pakistan must increase the interest rates significantly, as it told the IMF that inflation might jump to 29%. The power tariff would be increased and new taxes will be imposed to pave the way for the deal.

Due to a severity of the economic crisis, every agreed measure would be tough on an overwhelming majority of Pakistanis.