Dar says MEFP draft received from IMF

Finance Minister Ishaq Dar while addressing a press conference on Friday in Islamabad said that the Memorandum for Economic and Financial Policies (MEFP) draft was received at 9am.

The minister's conference comes after Pakistan and the International Monetary Fund (IMF) failed to reach a staff-level agreement on Thursday but agreed to a broad framework to satisfy the lender of the last resort in the coming days.

The IMF discussed the draft of the MEFP just before the end of the scheduled review talks, leaving no room for the staff-level agreement on the same day.

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To break the deadlock, an unscheduled virtual meeting was held between Prime Minister Shehbaz Sharif and IMF Mission Chief Nathan Porter.

However, Dar insisted that the meeting was "nothing unusual".

After 10 days of extensive discussions, Dar said that the Prime Minister had assured the IMF of Pakistan’s resolve to fulfill its sovereign commitments.

He added that prior to the meeting with PM Shehbaz, Dar and his team insisted that the IMF release the MEFP which he stressed was “no abnormal matter”.

“This is the standard procedure that is followed in every programme,” he said.

The finance minister is now set to review the MEFP and hold a virtual meeting with the IMF on Monday.

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“As far as this programme is concerned,” Dar said he believed that “it is in Pakistan’s interest to reform certain sectors”.

“We cannot afford that this economy keeps on bleeding,” he said blaming the previous PTI government for the country’s economic woes.

“It is important to fix those mistakes right now,” he said emphasising their significance for ending circular debt.

Insisting that the talks had ended on a "positive note", Dar said that he hoped that the IMF will not delay matters any more than is necessary and also remained optimistic that the next tranche of $1.2 billion would be released soon.

The minister revealed that as per the IMF’s programme requirements, the government will have to impose taxes worth Rs 170 billion and stressed that his team would try its best that the burden of these taxes would not directly fall upon the “common people”.

In the same breath, he denied reports that Pakistan would have to take additional revenue measures equal to 1.4% of the size of its economy or over Rs700 billion to achieve a tax collection target of around Rs6 trillion in the next fiscal year under the IMF deal.

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He also said that the government aims to "minimise untargeted subsidies" in the energy sector and reduce the circular debt flow, particularly in the gas sector which he said must now be brought to zero.

"The petroleum development levy is almost complete," the minister added.

He also said that Benazir Income Support Programme (BISP) would be bumped up from a budget of Rs360 billion to Rs400 billion, with the agreement of the IMF.

Speaking about the alarmingly low level of foreign exchange reserves that have dropped to $2.7 billion, Dar urged all "not to be dishearted".

"The Stae Bank is managing things," he insisted arguing that the reserves had dropped so low because Pakistan had made some major payments and he nonetheless remained resolute that that "money stuck in the pipeline should come*.

He held that under normal circumstances, after payment, such loans are typically renewed "very quickly if not immediately". Therefore, Dar said he remained convinced that the matter would be resolved soon but shied away from providing further details.

Also Read IMF talks end without staff level agreement

For clinching the MEFP and the staff level agreement, the government eventually conceded to almost every demand by the IMF.

The Fund has rejected the “gradual approach” proposal of Pakistan, saying everything has to be done upfront.

The broad consensus is on leaving the US dollar on the market forces, significantly increasing interest rates and electricity prices, and imposing new taxes.

Due to the severity of the economic crisis, every agreed measure would be tough on most Pakistanis.

'Considerable progress'

An IMF mission led by Nathan Porter visited Islamabad from January 31 to February 9 to hold discussions under the ninth review of the authorities’ programme supported by the IMF Extended Fund Facility (EFF) arrangement.

At the end of the visit, Porter issued the following statement:

"The IMF mission had been in Islamabad since Jan 31 to sort out differences over the government's fiscal policy that had stalled the release of over $1 billion from the $6.5 billion bailout package signed in 2019.

“Considerable progress was made during the mission on policy measures to address domestic and external imbalances. Key priorities include strengthening the fiscal position with permanent revenue measures and reduction in untargeted subsidies, while scaling up social protection to help the most vulnerable and those affected by the floods; allowing the exchange rate to be market determined to gradually eliminate the foreign exchange shortage; and enhancing energy provision by preventing further accumulation of circular debt and ensuring the viability of the energy sector. The timely and decisive implementation of these policies along with resolute financial support from official partners are critical for Pakistan to successfully regain macroeconomic stability and advance its sustainable development.

“Virtual discussions will continue in the coming days to finalize the implementation details of these policies.”