IMF lauds ‘considerable progress’, but talks remain inconclusive

Updated February 15, 2020

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“All end-December performance criteria were met, and structural benchmarks have been completed,” says IMF statement. — AFP/File
“All end-December performance criteria were met, and structural benchmarks have been completed,” says IMF statement. — AFP/File

ISLAMABAD: The Interna­tional Monetary Fund said Pakistan has made “considerable progress” on its programme, but a staff-level agreement could not be reached as talks on the second review of the ongoing facility ended on Friday and the IMF team departed the country.

“All end-December performance criteria were met, and structural benchmarks have been completed,” a statement released at the end of the talks said. But the same statement also made it clear that final agreement on the targets for the next few months remained elusive.

“Steadfast progress on programme implementation will pave the way for the IMF Executive Board’s consideration of the review,” the Fund statement said in the place where staff-level agreements are usually announced. At the end of the first review in November 2019, for example, the Fund statement began with the announcement that “[t]he Pakistani authorities and IMF staff have reached a staff-level agreement on policies and reforms needed to complete the first review” of the ongoing facility.

In the statement, the Fund gave an endorsement to the government’s implementation of the programme till December 2019. “Economic activity has stabilised and remains on the path of gradual recovery,” it said. The current account deficit has declined and the exchange rate “is now broadly in line with fundamentals”, while foreign exchange reserves “rebuild at a pace considerably faster than anticipated”, it noted.

It also said inflation should now decline since the impact of the exchange rate depreciation of summer 2019 “has been absorbed and supply-side constraints appear to be temporary”.

On the fiscal side too, the Fund gave strong endorsement. “Fiscal performance in the first half of the fiscal year remained strong, with the general government registering a primary surplus of 0.7 per cent of GDP on the back of strong domestic tax revenue growth.”

Speaking to Dawn, Adviser to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh would only say that “discussions are ongoing and we are likely to have a staff-level agreement soon”.

It was not clear what sticking points remained in the talks. Some informed sources said the absence of a leader in the Federal Board of Revenue (FBR) for a clear cut direction on revenue front and the government’s change of mind on energy prices were residual issues left to be sorted before a staff-level agreement could be reached.

However, another highly placed source denied these were issues, saying some details regarding the revenue target were all that were left to be worked out and this could be done in a matter of days. “The Fund team had to leave because there is a long weekend in Washington DC due to President’s day, so we agreed to complete the discussions after that, nothing more” he told Dawn.

“The government needs to put in place a bankable way forward acceptable to the IMF on both these issues,” one of these sources told Dawn, “besides some other minor changes to the memorandum of economic and financial policies (MEFP) for the next quarter”.

Another source with direct knowledge of the talks said some discussion remains on the revenue target numbers, though an agreement has been reached to bring down the target further from Rs5.23 trillion that was agreed to in December 2019 after the first review of the ongoing facility. He would not elaborate on how much the reduction would be.

Executive director of Susta­inable Development Policy Institute Dr Abdul Qayyum Sulehri said it is unlikely that the IMF will create any obstacle in the last quarter of the fiscal year. On energy circular debt, he said that “consumers will keep on paying and the major milestone will be the next budget which will be prepared under the fund guidelines”.

The sources said a new FBR chief to be inducted soon and energy costs will need to be escalated, notwithstanding with some delays on the concerns due to the prime minister who is apprehensive about the inflationary impact of such a move.

An informed source said the authorities advocated scaling down the policy rate of the central bank to generate economic activities, but the IMF’s insistence on its stability led the authorities to stick to delayed adjustments in energy prices.

The finance ministry spokesperson took to social media to highlight the achievements pointed out by the IMF and said that “the talks were concluded with complete understanding on all issues and progress in all areas was noted. The IMF Board in all likelihood will approve the recommendations of the review team”.

He would not say why the staff-level agreement was not completed, saying only that the IMF team left the country “expressing satisfaction with the progress made”. He said the authorities may freeze energy prices for a while until prices of wheat and sugar come under control, but eventually energy payment charges will have to be passed on to consumers.

Published in Dawn, February 15th, 2020