Critical negotiations with the IMF are in limbo.
The global lender does not envisage $5b foreign loans materializing soon.
ISLAMABAD: With just two days left to wrap up negotiations, the International Monetary Fund (IMF) fears that Pakistan may not receive the anticipated $5 billion in loans from multilateral and commercial creditors. Islamabad is still awaiting the draught of the Memorandum for Economic and Financial Policies (MEFP).
The government believes it is in a strong position to reach an agreement by Thursday, the final scheduled day for the discussions, but the negotiations have reached a critical point when they might go in either direction.
At the conclusion of the eighth day of negotiations, a senior government official said, “We cannot say that there is a standstill as all sides are still engaged with an open mind.”
Before determining a precise main fiscal deficit figure, he claimed that the IMF had requested more details regarding the predicted province cash surpluses.
For this fiscal year, the government had budgeted a provincial cash surplus of Rs750 billion. Only Rs177 billion in surplus was shown by the four federating units during the first half (July to December). In comparison to the same period in the previous fiscal year, the surplus was Rs304 billion, or 63% less.
Pakistan had anticipated to acquire the first copy of the MEFP, a crucial programme document that contains the revised fiscal, monetary, and external sector targets for the rest of this fiscal year and the estimates for the following fiscal year, by Monday.
The MEFP draught has not yet been provided with Pakistan by the IMF, senior officials told The Express Tribune late Tuesday night. The remaining 48 hours until the anticipated negotiations’ completion could be exceedingly difficult to wrap up if there is a delay.
Officials from the finance ministry hoped that the IMF would share the first draught of the MEFP today (Wednesday). If the IMF provided the first draught, it would take more effort to accept all of the suggested numbers within the following 24 hours.
According to the sources, the power industry was the biggest obstacle impeding the completion of the fiscal tables. The gross external financing plan published by the Ministry of Finance also raised concerns for the IMF.
They continued by saying that the IMF believed that the expected non-Chinese commercial loans, totaling $3.6 billion, would not come to pass. Given that two banks—one in the Gulf and one in Europe—had expressed interest, the Ministry of Finance informed the IMF that this money may be obtained. However, these proposals were still in their very early stages and were contingent on an agreement at the staff level between Pakistan and the IMF.
The 9th programme review is currently being discussed between Pakistan and the IMF, and if it is completed successfully, the $1.1 billion loan tranche would become available.
The other multilateral and bilateral lenders would not decide to approve large fresh loans to Pakistan until the IMF agreement was made public.
According to the sources, the IMF also reduced the planned loans from the World Bank by about $1 billion as a result of its concerns on the budget assistance loans.
However, the government team believed that subject to the staff-level agreement, at least $450 million second Resilient Institutions for Sustainable Economy (RISE-II) might be inked. The second Programme for Affordable Energy (PACE-II), worth $600 million, was also emphasised as something that would be sought for approval.
Finance Minister Ishaq Dar met with the World Bank team on Tuesday after the IMF round of negotiations over the external funding figures and asked it to take approval of the loans into consideration for this fiscal year, according to sources.
According to reports, Dar asked the WB team to consider the permission because Pakistan has fulfilled the requirements for the RISE-II. Last month, a WB representative informed The Express Tribune that the RISE-II approval had been postponed until the upcoming fiscal year.
Dar also asked the WB to inform the IMF delegation that the PACE-II is being considered for approval during this fiscal year. The sources claimed that the WB delegation was still unsure of its position on the dates.
The government’s anticipated receipt of a $450 million loan from the Asian Infrastructure Investment Bank was also reduced, according to the sources, by the IMF (AIIB).
The government may have a difficult time persuading the IMF that the external sector is viable from now through June due to concerns about the $5 billion credit package. Only $3 billion in gross foreign exchange reserves were still available to the nation.
Another significant change would be to the Net International Reserves goal, which is the gross official foreign reserves less the one-year debt repayments.
Before the IMF, the SBP official argued that the central bank was on pace to meet the performance requirements.
The sources claimed that despite the prime minister’s approval for a rise in electricity tariffs, there were still certain obstacles to clearing before the IMF about the problems facing the power sector.
One of the issues is that the National Electric Power Regulatory Authority would not permit passing on the cost of some political decisions and the sector’s inefficiencies to the final consumers, even if the government agreed to pass on the full Rs671 billion impact to consumers through price increases.
This still creates a vacuum that must be filled through various ways, such as raising taxes.
According to a senior government official, the gas sector flow will be blocked by a tariff rise as a result of the resolution of the circular debt in the gas sector.
