Published in The News on February 09, 2023
ISLAMABAD: Differences persist over external financing needs and power sector losses between the International Monetary Fund (IMF) and Pakistani side, delaying handover of the draft memorandum of economic and financial policies (MEFP) to the Pakistan side.
The scheduled timeframe for completion of the 9th review is going to end on Thursday (today). Keeping in view the last reviews, done by the Pak side with the IMF under the ongoing Extended Fund Facility (EFF), both sides took much time for striking staff-level agreement even after getting the draft MEFP document and nine tables. But, according to the Pakistani authorities, now the IMF mission had changed its working style — they will finalise the agreement first and then share the MEFP with Pakistan today.
According to a finance ministry statement issued here late in the evening, talks with the IMF continued on Wednesday and focused on fiscal table, financing, etc. “There is a broad consensus on the reform actions and measures. The Mission chief also called on the finance minister and briefed him about the talks,” the statement said adding that the Mission was working on putting it all together and would finalise the MEFP.
Sources said the IMF had raised doubts about the shrinking dollar inflows, so without securing confirmation from all avenues of multilateral, bilateral, and commercial banks, the Fund mission could not fulfil the gross external financing needs of $9 billion to $12 without securing confirmation. This level of external financing requires in the remaining period of five months till June 30, 2023, if the reserves held by the SBP remained at around $3 billion. However, if the country requires to build up foreign currency reserves of more than $3 billion, it will have to further increase dollar inflows. So, the path of securing much higher dollar inflows is the most difficult thing to do in a difficult environment.
The IMF’s Mission Nathan Porter held one-on-one meeting with Minister for Finance Ishaq Dar at Prime Minister’s House on Wednesday evening as Pakistani authorities hoped that the MEFP document would be shared on Thursday (today) with the Pakistani side when the timeframe for accomplishing pending 9th review would end. If the consensus could not be evolved until today, the IMF mission might extend its stay or announce continuing parleys through online meetings from Washington D.C.
The IMF expressed its unease over the projections made by the Ministry of Finance over external financing inflows from multilateral, bilateral creditors and in the shape of commercial loans. The government had shown $2 billion additional deposits from Saudi Arabia, $1 billion from the UAE and commercial loans of $3.6 billion. The World Bank programme loans and AIIB co-financing is also placed in danger zone. Since the period of re-financing is over, the government will have to negotiate fresh terms and conditions for obtaining commercial loans keeping in view worsened credit ratings and increased default risks. If gross external financing needs are not fulfilled, the country’s foreign exchange reserves cannot be increased up to the desired mark. The country’s short-term risk of default will continue to persist so the IMF does not want to share blame for such responsibility in such a precarious position.
Pakistan and the IMF were scheduled to hold parleys from January 31 to February 9, 2023 for making efforts to strike a staff-level agreement for completion of 9th review and release of $1 billion tranche under $6.5 billion Extended Fund Facility. “Despite passing of nine days parleys between the two sides, the IMF did not hand over the draft MEFP to Pakistani side till Wednesday night,” top official sources confirmed while talking to The News on Wednesday. A senior official of Finance Division said the MEFP was expected to be handed over to Pak authorities on Thursday (today). Dr Aisha Ghaus told reporters PM Shehbaz Sharif had given clearance for the measures requiring to revive the IMF programme. She said that the government would protect the common citizens while the affluent class must pay the price of higher electricity consumption. She said that both sides were nearing to clarity and hoped that the MEFP would be shared soon and agreement would be struck within the envisaged timeframe.
However, the top official sources said that the government sought adjuster of Rs472 billion for flood related expenditures during the current fiscal year. Now the government is verifying the figures to jack it up to Rs500 billion for seeking permission from the visiting IMF mission on seeking waiver from calculating the primary deficit for the ongoing financial year.