IMF's seventh review in jeopardy: Fund objects to PM's relief package

• Pakistan, IMF’s seventh review talks so far remain inconclusive.
• IMF staff objects to PM's relief package for slashing down petrol, diesel, and electricity prices.
• The review talks are expected to conclude on coming Wednesday.

ISLAMABAD: Terming the breaches committed by Pakistan "deviation", the International Monetary Fund (IMF) raised serious objections over the Prime Minister's relief package as talks between the two remained inconclusive, The News reported.

Pakistan and the IMF’s seventh review talks for the release of the next loan tranche have so far remained inconclusive after breaches committed by Islamabad on different fronts.

During the dialogue, the IMF staff objected to the prime minister’s relief package for slashing down petrol, diesel, and electricity prices as well as granting tax amnesty to the industrial sector.

The Fund had slapped the condition that Pakistan will not grant any tax amnesty and it is part of a continuous structural benchmark. However, Islamabad breached this continuous structural benchmark which now requires a waiver from the IMF’s Executive Board for completion of the seventh review and release of the next tranche.

Read more: Tarin assures govt will hold tough negotiations with IMF on withdrawal of PIT exemptions

For striking consensus on Memorandum of Financial and Economic Policies (MEFP), the IMF has asked Islamabad to jack up discount rate, allow free movement of the exchange rate, slash down Kamyab Pakistan Programme (KPP) and reverse relief package measures to align it with prudent financial management.

The review talks were scheduled for two weeks and are expected to conclude on coming Wednesday (March 16). 

With emerging of new realities on the macroeconomic front, the IMF has opposed the PM’s relief package under which the petrol and diesel prices were reduced by Rs10 per litre and electricity prices by Rs5 per unit from March to June 2022.

Moreover, the government has envisaged disbursing loans of Rs407 billion under the much-hyped KPP but the IMF is asking to slash down this amount for two years period till June 2023.

Rising political temperature to take a toll on talks

Amid rising political temperature, it was expected that both sides would not be able to strike staff-level agreement under the seventh review so the parleys will continue lingering on till the political dust is settled in the wake of no-confidence move against Prime Minister Imran Khan.

As Pakistan and the IMF team have so far failed to strike a consensus on the MEFP mainly because of rising twin deficit projections, the prescriptions for tackling the budget deficit and current account deficit could not be evolved on policy measures in the shape of tightening monetary and fiscal positions.

The IMF had envisaged the current account deficit at $12.2 billion on eve of the sixth review but it had already touched $11.6 billion for the first seven months of the current fiscal year. The budget deficit is all set to go up beyond 7% of GDP, equivalent to Rs4.4 trillion, the highest ever absolute figure during the current financial year.

In order to curtail the twin deficits, the IMF’s prescriptions clearly illustrate the tightening of fiscal and monetary policies as well as exchange rate adjustments in the range of Rs185-190 against the US dollar.

On the economic front, the IMF is also coming up with a prescription of tough prior actions in the shape of rising twin deficits including the budget deficit and the current account deficit.

The indicative target for Net International Reserves (NIR) might be another thorny issue between the two sides.

The IMF is also suggesting hiking discount rates and abolishing tax exemptions for individual taxpayers under Personal Income Tax (PIT) and also reducing the number of income tax slabs.

“Both sides will continue talks till next week for making renewed efforts to conclude the seventh review under $6 billion Extended Fund Facility (EFF),” top official sources confirmed to The News here on Friday.

Pakistan and the IMF were holding virtual review talks with the schedule to hold parleys from March 4 to 16, 2022 with the expectation that they would be able to strike a staff-level agreement.

“Hopefully the talks will be concluded in next week. It has taken some additional time due to relief package and industrial promotion package” one of the top official negotiators from the Pakistani side told this scribe.

Talks between the two continuing to the best of my knowledge: Tarin

This scribe contacted Federal Minister for Finance and Revenues Shaukat Tarin for seeking comments on Friday, he replied that the talks between Pakistan and the IMF teams were continuing to the best of his knowledge. However, he did not comment on the outcome of ongoing parleys between the two sides.

This scribe also sent questions to the IMF’s Resident Chief in Pakistan Esther Perez Ruiz but received no response till the filing of this story.

The last two reviews whereby the third, fourth, and fifth reviews were combined and the sixth review under the EFF arrangement took almost nine months for completion of parleys.

Read more: IMF approves $1bn loan tranche for Pakistan 

Now both sides were conscious of the fact that there is no liberty available to them for extending talks for months so they will have to conclude the ongoing talks by the end of the ongoing month for meeting the deadline to forward the staff report before the IMF’s executive board by next month to meet the deadlines of the programme.

There are three outstanding reviews including the seventh, eighth, and ninth of the IMF programme under the existing EFF arrangement which would expire by September 2022.