Govt softens stance to meet IMF terms

Sources say govt offered to cut expenses by Rs200 billion and impose new taxes of Rs100 billion

ISLAMABAD:

 

Pakistan and the International Monetary Fund (IMF) on Friday narrowed down their differences after Islamabad offered to make adjustments in the budget and also immediately withdrew restrictions on imports.

Sources told The Express Tribune that the government informed the IMF that it was willing to make adjustments, both in the budget and taxation sides. The offer was equivalent to around 0.3% of the gross domestic product (GDP) but it was nearly half of the gap that the global lender had identified, they added.

The government offered to cut expenses by Rs200 billion and impose new taxes of Rs100 billion, the sources said.

The authorities were hopeful that if the ongoing round of talks remained successful and the staff-level agreement could be reached at the earliest. The sources said that the things really moved at a fast pace since Thursday.
The finance ministry did not officially comment on the development.

The discussions continued until late night after the IMF asked Pakistan to make further adjustments. At the next fiscal year’s projected size of the economy, the offer made by Pakistan was equal to around Rs300 billion but the exact figure could not be verified.

In case the IMF and Pakistan bridge the gaps in their positions, Finance Minister Ishaq Dar may announce these changes during his speech in the National Assembly, while winding up the budget debate. The speech is tentatively scheduled for Saturday (today).

A senior government functionary said on condition of anonymity that Pakistan had reached the halfway and now the IMF should come forward and cover the distance.

Of $6.5 billion total programme size, Pakistan has not yet received the amount of $2.6 billion because of the incomplete 9th, 10th and 11th reviews of the bailout package.

Prime Minister Shehbaz Sharif and Finance Minister Dar have repeatedly said that Pakistan had completed all the prior actions and the IMF should immediately approve the next loan tranche of $1.2 billion.

The programme is ending on June 30 and the IMF Managing Director Kristalina Georgieva told the prime minister during a telephonic conversation on May 27 that the programme could not be extended further.

The sources said that the IMF once again asked the government to withdraw the amnesty scheme. The government has offered no-question-asked scheme on bringing in up to $100,000 from abroad, which the IMF said would set a “damaging precedent”.

The IMF had also asked Pakistan to withdraw the newly proposed tax exemptions, which the government said were critical to achieve the next fiscal year’s 3.5% GDP growth target. The IMF chief wanted that all policy matters should be resolved at the IMF staff level.

The sources said that the adjustments in the budget were being proposed against the allocations for the subsidies and the grants. They added that after making these adjustments, new pink books and the budget-in-brief might have to be published.

A day earlier, the prime minister underscored that all prior actions for the 9th review under the Extended Fund Facility (EFF) had been completed and the government was fully committed to fulfilling its obligations agreed with the IMF.
In a major move on Friday, the State Bank of Pakistan (SBP) withdrew an advisory that it issued six months ago to the banks to restrict the imports.

Due to administrative controls imposed on the imports, Pakistan’s current account deficit drastically narrowed down to $2.9 billion during the first 11 months of this fiscal year.

The IMF sees the improvement artificial and a distortion in the market. The SBP’s circular of December 27, 2022, was an irritant in the Pakistan-IMF talks. Earlier, Pakistan had committed to withdraw these instructions from March this year but it did not honour the commitment.

The central bank had instructed the commercial banks to open letter of credits only for the imports of wheat, edible oil, pharmaceutical, energy imports, imports by export-oriented industry, and imports for agriculture inputs.

The sources said that the IMF again raised the issue of exchange market distortions to which Pakistani authorities said that it was not intervening in the currency market.