Pakistan urges IMF to ease bailout terms

Prime Minister Shehbaz Sharif on Wednesday urged the managing director of the International Monetary Fund (IMF) to ease certain stringent loan conditions in light of the devastating floods. However, the global lender is expected to first review Pakistan's budget to verify whether substantial allocations have been made for relief and rehabilitation of the affected population before considering any concessions in the multibillion-dollar bailout program.

Pakistan is set to begin talks with the IMF on Thursday amid mixed performance on the revenue front, having failed to meet several agreed conditions. Key concerns include the Federal Board of Revenue's (FBR) underperformance and the government's continued inability to reform state-owned enterprises — both seen as major weak points in the negotiations.

In a last-minute move to meet another condition of the global lender, the government on Wednesday allowed the commercial import of five-year-old passenger cars. However, it simultaneously slapped a 40% regulatory duty to shield local automobile assemblers from increased competition.

Premier Shehbaz sought relief in his meeting with the IMF managing director, Kristalina Georgieva, on the sidelines of the UN General Assembly session, hours before the global lender and Islamabad were going to lock in 14-day-long talks for the release of a $1 billion loan tranche.

"The prime minister said that the impact of recent floods on Pakistan's economy must be factored into the IMF's review," reads a statement that the PM's office issued after meeting with Georgieva.

Finance Ministry sources said the government is seeking relief from the IMF in the form of relaxed targets for the primary budget surplus and cash surplus, in order to accommodate additional spending for flood-affected communities. It is also working on a relief package for the agriculture sector.

However, sources said that the IMF has communicated that it would first see the use of the contingency funds that is allocated in the budget to meet unforeseen expenses like dealing with natural calamities.

There have been concerns that the floods may cause huge losses but the damages are now expected to be far lower than initially feared.

Sources said that a formal flood damage assessment has not yet been finalised, as the committee led by Planning Minister Ahsan Iqbal has yet to submit its report. They added that without a concrete assessment, securing meaningful relief from the IMF may prove difficult.

Sources added that the IMF would also review the spending out of the contingency pool value of around Rs400 billion. The government has yet to allocate any significant funds for the flood-affected people from the contingency pool.

Initially, there were apprehensions that the floods may have washed away about 60% of the rice crop. But the initial reports now suggest that only 4% of the total rice crop is completely damaged, and another 7% is substantially damaged. Nearly 16% rice crop is partially impacted by the flood, causing 10% loss of the yield in Punjab.

Floods have affected over one million acres of rice across the province. Northern divisions like Gujranwala and Gujrat experienced the highest flood impacts, while rain damages were more dispersed but included in the quantified yield losses.

The country's total rice cultivation area is approximately 6.5 million acres, with floods posing the greater threat to production. No damages were reported as of late August, indicating a rapid escalation within a short span of time in September highlighting vulnerability of key rice growing regions of Punjab.

The IMF chief expressed her sympathy with all people affected by the floods. She noted the importance of the damage assessment to underpin recovery priorities.

During his meeting with the IMF managing director, the prime minister appreciated the IMF's longstanding constructive partnership with Pakistan which, under Georgieva's leadership, had strengthened further, read a statement.

The prime minister acknowledged the IMF's support under various instruments, totaling around $11.4 billion during the past couple of years. "Today, with the institution of deep-rooted structural reforms, Pakistan's economy is showing positive signs of stabilisation and is now moving towards recovery," the prime minister said.

The IMF chief commended the prime minister's commitment to pursuing sound macroeconomic policies and reiterated the IMF's continued support as Pakistan advances the necessary economic reforms to ensure sustainable long-term economic growth.

Condition on cars

A meeting of the Economic Coordination Committee (ECC) of the cabinet was also held on Wednesday. The ECC considered a summary regarding commercial import of used vehicles and, after detailed discussion, accorded approval to the proposals, according to the finance ministry.

The ECC decided to amend relevant provisions of the Import Policy Order, 2022 to allow the commercial import of used vehicles.

Initially, only vehicles not older than five years will be permitted until June 30, 2026, after which the vehicle age limit shall stand removed, it added.

The ECC further directed that such commercial importation would remain subject to strict compliance with prescribed environmental and safety standards.

The ECC also approved the imposition of 40% regulatory duty, in addition to the existing customs duties, on the commercial import of used vehicles of less than five years old. This enhanced duty will remain applicable until June 30, 2026. Thereafter, the duty shall be reduced gradually by 10% per year, reaching zero by 2029-30, in line with the recommendations of the Tariff Policy Board.

Sources said that the IMF would be minutely scrutinising the FBR performance, as it could not meet many of the agreed targets.