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Differences remain over tough conditions of IMF bailout

Updated November 20, 2018

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Finance Minister Asad Umar and IMF chief Christine Lagarde shake hands before their meeting. — AFP/File
Finance Minister Asad Umar and IMF chief Christine Lagarde shake hands before their meeting. — AFP/File

ISLAMABAD: Pakistan and the International Monetary Fund are facing differences over tough conditionalities on key areas of an IMF bailout programme, including further increase in energy prices, more taxes and complete disclosure of Chinese financial support.

“There are still gaps in the position of the IMF and the position that we have,” Finance Minister Asad Umar said after a series of meetings with an IMF team on Monday. He, however, said the talks were continuing positively and gaps reducing.

Take a look: Why Pakistan will go to the IMF again, and again and again

He said that $1 billion of the $3bn committed by Saudi Arabia had been remitted to the State Bank of Pakistan on Monday and the remaining $2bn would follow over the next few days.

Informed sources said the two sides had a wide gap in their positions on the need for increase in electricity tariff, upward revision in the revenue target and additional tax measures on matters relating to Chinese assistance and its impact — both inflow and outflow.

Fund wants further increase in power tariff, more taxes and complete disclosure of Chinese financial support

The sources said the IMF also demanded that the provincial governments finance the Benazir Income Support Programme (BISP), instead of the federal government, and wanted committed cash surpluses to minimise the consolidated fiscal deficit.

The two sides are expected to conclude the talks on Tuesday before Finance Minister Umar leaves for Malaysia in the evening.

The sources said the IMF was insisting on revising the revenue target upward to Rs4.75 trillion for the current year — more than eight per cent increase from the existing target of Rs4.39tr. Practically, this means raising about Rs360bn additional revenue from the remaining seven months of the current fiscal year.

Finance Minister Umar, according to the sources, told the IMF mission led by Herald Finger that the revenue target could be increased at best to Rs4.5tr and the government’s major focus would be on recovering taxes through administrative measures.

Responding to a question, he said the talks would end on Tuesday and declined to go into specifics of the sticking points. Regarding the Chinese financing, the minister said there was complete transparency in the Chinese assistance and whatever the external debt was would have to be shared with the IMF as part of the programme.

In response to another question, he said the people in the United States might have some issues, but there was no secret in Chinese loans and investments which were transparent and open.

The sources said the IMF mission wanted a clear roadmap for elimination of power sector circular debt that currently stood at Rs1.2tr and welcomed administrative measures to recover some arrears, but insisted on further increasing electricity rates for full cost recovery of power supply. The sources said the IMF team was not satisfied with the power sector reforms plan and wanted the government to surrender its powers to set electricity tariff and let these be independently dealt with by the power regulator.

The finance minister insisted that maximum funds would be generated through administrative measures against theft and recovery of past bills and there was no more room for further increase in electricity rates in the short term.

The sources said the IMF was very critical of the fiscal federalism arrangements at present and noted with concern that the Centre had transferred all profitable taxes to the provinces while keeping all necessary expenditures of provincial nature as federal responsibility.

In this regard, the IMF wanted the provinces to finance the BISP that currently stood at about Rs150bn a year and is increasing because poverty reduction should be a shared responsibility of the federal and provincial governments. Likewise, the special areas like mainstreaming of the tribal region should also be a responsibility of the provinces.

The IMF mission also sought a complete market-based free float of the exchange rate and complete independence to the State Bank of Pakistan.

Asked if he expected a successful completion of a Fund programme on Tuesday, the finance minister said the IMF visit would conclude on Tuesday and he had no funding emergency to worry about day after tomorrow. The sources said the IMF also suggested an increase in the GST rate.

Published in Dawn, November 20th, 2018

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