New bailout in jeopardy: IMF, government stick to their guns

Dar says govt will not compromise national interests for loan programme.

ISLAMABAD: As Pakistan’s economic managers vowed to protect national interest in its dealings with the International Monetary Fund, the international lending institution is said to have complained about “inconsistency of the country’s budgetary figures” and “ill-preparedness of the Pakistani team”.

The two sides refused to budge on their respective positions in their 10 days of negotiations, indicating that the prospects of reaching an agreement are slim, sources told The Express Tribune on Friday.

The talks might end up on a Post Programme Monitoring (PPM) dialogue until Finance Minister Ishaq Dar addresses the concerns of the IMF team, sources added.

Pakistan and the IMF will commence their policy dialogue on Saturday [today] which will continue till July 2, said the finance ministry spokesperson Rana Assad Amin. He said today’s talks will determine whether Pakistan will formally seek a loan from the IMF.

The Fund’s concerns were more about the inability of the Pakistani team to convince it about the delivery of promised measures than the budgetary measures, sources said. The technical-level team is said to have confused the IMF team about the budgetary projections, they added.

“The government is mishandling the IMF team that may cost it a new programme,” said one source. The government should immediately reconstitute its negotiating team to salvage the talks as a few days are left before the IMF team returns to Washington, he added.



Pakistan is vying for a $4.5 billion IMF package to return the money it has already borrowed besides seeking IMF’s nod for getting another $6.5 billion from the World Bank, the Asian Development Bank, Islamic Development Bank and a friendly country.

The officials negotiating on energy and taxation matters were not even aware of the complications and technicalities of the negotiations, sources said. “They do not understand the language of the IMF,” said one of the senior officials who participated in one of the sideline meetings with the IMF team.

Finance Minister Ishaq Dar, however, stoutly denied reports that his team was not up to the mark. The government, according to Dar, has pitched its best team with the likes of Finance Secretary Dr Waqar Masood and State Bank Governor Yaseen Anwar.

He said it was not anyone’s job to tell us whether our team was experienced or not. The government will not obtain a new IMF programme by compromising national interest.

The IMF has problems with officials of up to the additional secretary level at the finance ministry, FBR officials and surprisingly with SBP officials, sources said, adding that all these could not convince the fund during the technical-level talks.

Sources said that IMF was worried that the SBP was short of $3 billion of reserves that it showed as part of its reserves but borrowed from the commercial banks.

The Fund has serious issues with the SBP policy of defending the rupee by using already declining reserves. So far, it has used over $2 billion to defend the rupee. But the SBP governor was not ready to accept the argument, sources said.

Furthermore, the IMF is also worried about the central bank “changing goalposts” when it comes to the monetary policy. It highlighted that sometimes the SBP targets headline inflation and sometimes energy and food-adjusted inflation when it comes to reducing the discount rate.

Another concern was the inconsistencies in revenue and expenditure estimates, which are also not backed by any framework. The Fund was worried that how FBR would achieve its tax target of Rs2.475 trillion. The finance minister had told the National Assembly on Thursday that the IMF was seeking Rs275 billion in new taxes.

Dar said the IMF’s only concern was that the Rs2.475 trillion target might not be achieved without levying more taxes.

The IMF has also objected to the government’s claim of reducing power subsidies. Again the energy team was unable to convince the IMF about the government’s plan to gradually increase power tariffs, sources said.

According to the finance minister, as a first step towards resolution of the energy crisis, the government on Friday paid off Rs322 billion circular debt.

The IMF was also sceptical about the government’s claim of receiving $1.1 billion under the Coalition Support Fund from the United States. The Fund said the Treasury Department had not confirmed $1.1 billion releases in the new fiscal year, sources said.

They added that the Fund was also worried about the impact of fiscal decentralisation as over 65% of taxes go to the provinces, limiting the ability of the federal government to implement fiscal consolidation plan of 2.5% of gross Domestic product for the next year.

The law and order situation was the other point that the IMF was thinking as it also have implications for revenue generation, particularly in Karachi.

Published in The Express Tribune, June 29^th, 2013.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.