Despite certain external sector challenges, the government in ISLAMABAD is sure it can finish the program review and has agreed to restart talks with the International Monetary Fund (IMF) on November 2 to release the second loan tranche of $710 million.
Although the IMF has not placed any express condition on the impending review negotiations for the period of July-September of this fiscal year, clarity on the next general elections date can further strengthen the hands of the Ministry of Finance.
According to IMF resident representative Esther Perez’s interview with The Express Tribune, a team led by Nathan Porter will arrive in Pakistan on November 2 to conduct the first review under the existing $3 billion Stand-By Arrangement (SBA).
According to reports, the Ministry of Finance told the IMF that all the necessary data was available for the review talks on November 7, despite the IMF’s proposal that the date be moved back to account for any delays in gathering data for the first quarter.
In December, the IMF board will vote on whether or not to approve the $710 million second loan tranche, which will be the subject of the first review talks. The first $1.2 billion of the 3-billion-dollar loan was disbursed in July, when the IMF gave its approval.
Government officials and the State Bank of Pakistan are confident they would be able to successfully finish the review after implementing the measures agreed upon with the IMF in July.
However, the external finance gap continues to be a challenge for the government, with a large discrepancy between the loans expected to be received and the actual disbursements made during the current fiscal year, according to an internal review conducted by the Ministry of Finance.
A recent estimate by the government puts the deficit at $4.5 billion, and that’s only due to Eurobonds and the foreign commercial loans. Taking into consideration the gap versus other expected disbursements makes the hole much larger.
On Tuesday, a high-ranking government official announced that the IMF would also conduct a thorough examination of the country’s currency rate policy and monetary policy position.
The dollar’s strength against the rupee has reversed course in recent days after a sustained decline that lasted more than a month.
It is expected that the IMF negotiations will follow the devaluation of the rupee.
Due to a crackdown on hoarders, smugglers, and importers led by the military, the value of the rupee has increased by 8% in the interbank market and 14% in the open market during the previous month and a half.
According to the sources, global financial institutions are keen for more transparency on the future of politics.
Although the elections must be held by November 9 per the Constitution, the Election Commission of Pakistan has tentatively set the end of January 2024 as the date.
According to The Express Tribune’s sources, the Pakistani delegation at the recently concluded IMF-World Bank annual sessions encountered three major issues at nearly every meeting.
According to the sources, the finance ministry officials were questioned about the interim government’s mandate, the upcoming elections, and the Special Investment Facilitation Council’s current standing.
The Ministry of Finance appeared dedicated throughout the past three months to completing the conditions set for the $3 billion initiative, in contrast to the previous failed $6.5 billion programme.
The finance secretary showed receptivity to the IMF’s questions on multiple occasions and maintained open communication.
When the previous $6.5 billion agreement fell through, the Ministry of Finance had a habit of seemingly dragging its feet.
The $6.5 billion Extended Fund Facility was unable to be released in full before the end of the program on June 30.
According to Julie Kozack, the IMF’s director of strategic communications, “steadfast implementation” of the nine-month SBA is “critical to Pakistan’s future.”
Jameel Ahmad, governor of the SBP, has stated this month that the bank is “comfortably placed” to meet IMF targets by the end of September.
He had reported that SBP’s forward foreign exchange obligations had decreased, and that the $4.2 billion forward book target for end-September 2023 had been met by a large margin. This target had been agreed upon with the IMF.
According to the head of the central bank, the SBP is also well-positioned to fulfill the other September 30th IMF benchmarks of minus $14.5 billion in Net International Reserves (NIR) and negative Rs15 trillion in Net Domestic Assets (NDA).
Power Division easily met IMF criteria for cyclical debt reduction plan, according to a cabinet minister dealing with one of the economic ministries on Tuesday.
With effect from November 1, the government has raised the cost of both electricity and gas.
Circular debt growth was initially capped at Rs155 billion for Q1, however this limit has since been increased to Rs292 billion.
The government had promised the IMF that it wouldn’t subsidize petrol or other goods and services.
However, domestic exports and industrial gas consumers are eligible for cross subsidies.
Due to the Federal Board of Revenue’s stellar performance and a halt in public sector development spending, it is possible that the main budget deficit target of Rs87 billion for the first quarter will be met.
The government may not be able to achieve the primary surplus goal of Rs421 billion by the end of the fiscal year. The province governments have not made large first-quarter expenditures under their yearly development plans, with the exception of Punjab.
