Technical level talks with IMF begin

Updated April 30, 2019

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Pakistan and the International Monetary Fund kicked off on Monday technical level talks to sort out details of the proposed bailout package over the next 10 days. — AFP/File
Pakistan and the International Monetary Fund kicked off on Monday technical level talks to sort out details of the proposed bailout package over the next 10 days. — AFP/File

ISLAMABAD: Pakistan and the International Monetary Fund kicked off on Monday technical level talks to sort out details of the proposed bailout package over the next 10 days.

The visiting IMF mission will stay in Islamabad to conclude the technical details by May 6, while the policy level understanding will be reached over the next three days, a source at the finance division told Dawn. The proposed bailout package is expected to be $6-8 billion.

Read: IMF team coming to negotiate three-year bailout package

The source said that after the successful technical level talks Pakistan would sign an agreement with the IMF latest by May 10. The agreement would then be sent to the IMF board, the source said.

The understanding on a broader framework had already been reached between former finance minister Asad Umar and top IMF officials in Washington. Now, Adviser to the Prime Minister on Finance Dr Hafeez Shaikh will lead the technical level talks with the visiting IMF mission.

Details of proposed $6-8bn bailout package will be sorted out over the next 10 days

The government departments will share data on taxes, tariff, subsidies and other related issues with the Fund officials. The State Bank of Pakistan will share monetary-related details.

The source said the focus of the talks would be on fiscal and monetary policies.

But another official told Dawn on condition of anonymity that current talks were being held with the IMF mission amid improvements in the economy. “We have now seen a big change in the conditionalities attached with the Fund’s package in September last year,” the official said.

“We have changed the focus of conditionalities from external side to fiscal side”, the source said, adding that the IMF had now realised that the rectification measures taken by the government over the past seven months resulted in improvement in economic indicators. As a result, the Fund officials will now focus on the fiscal side mainly to general maximum revenue over the next three years.

The IMF had in September last year suggested tough conditions that could lead to 19 per cent inflation in the country. Its second biggest demand was to increase the interest rate to 21pc with an upfront increase of 600 basis points.

“Now these conditions have drastically changed,” the source said, adding that the demands now are not that tough. However, the IMF conditions will still push up inflation and interest rate in the country, but they will be at a lower level, compared to the earlier projection by the Fund.

The change in mind came because of the soft measures taken by the government to manage the external side of the economy, the official said. “We now argue that soft measures on fiscal side will also yield the same desired results.”

At the Washington meeting, the top IMF officials had admitted that Pakistan’s economy was responding to the measures taken over the past seven months.

“Another issue which is under negotiations is of exchange rate management,” the source said, adding that no limit for the exchange rate was agreed with the Fund.

The average current account deficit in the first three months (May-July 2018) before the Pakistan Tehreek-i-Insaf took over the charge of government was $2.036bn. Had the trend continued, it could have ended up safely at $24.4bn per annum. But the trend reversed in the last few months, the official said.

Read: IMF sees sharp jump in fiscal deficit, debt

The current account deficit declined to $969 million a month in the first seven (September-March) months of the current fiscal year. It further declined to $636m a month during January-March 2019 period.

According to the official, improvement on the external side could save harsher conditionalities from the IMF during the 10-day talks. “We expect to convince the IMF over the softer measures on the fiscal side to achieve the desired results,” the official said, adding that this was evident from the data on current account where a visible improvement was made.

Published in Dawn, April 30th, 2019