WASHINGTON: The last member of the Pakistani delegation, Finance Secretary Yousaf Khan, has also left Washington without securing an arrangement with the International Monetary Fund (IMF) for the resumption of a $6 billion extended loan facility.
The IMF may issue a statement over the weekend or early next week, explaining how the Fund’s economic reform programme, which includes the loan, can be revived. Pakistani officials, however, insist that the talks are still on track and the IMF statement will announce the resumption of the programme.
A high-level Pakistani delegation — including Finance Minister (now adviser) Shaukat Tarin, Finance Secretary Yousaf Khan, State Bank Governor Raza Baqir and other senior officials — arrived in Washington on Oct 4 to attend annual meetings of the World Bank and the IMF.
Although the delegation also held bilateral meetings with the participants from other nations, the resumption of the loan facility dominated their talks with the IMF.
Officials insist negotiations still on track and Fund’s statement will announce resumption of $6bn programme
In May 2019, Pakistan had reached an agreement with the IMF after months of difficult negotiations on a $6bn bailout package, called Extended Fund Facility (EFF). The 39-month bailout programme is subject to regular IMF reviews of Pakistan’s economic policy and growth. The arrangement calls for reducing domestic and external imbalances, removing impediments to growth, increasing transparency, and strengthening social spending.
In January 2020, the IMF put the programme on hold after the government did not agree to increase electricity prices and impose additional taxes. Recent media reports claimed that the IMF is demanding an increase of Rs4.95 per unit in electricity tariff and urging the government to impose taxes worth Rs150 billion.
At a news briefing in Washington, Shaukat Tarin acknowledged that the IMF had suggested increasing electricity and gas prices and tax rates, but he also said that increasing tariffs without structural changes “only increases inflation and makes our industry uncompetitive”. He, however, conceded that Pakistan also had to see the IMF’s point of view and that he had held “some technical discussions” with IMF officials on this issue.
The IMF’s demands are based on the original agreement that Pakistan signed in 2019 to seek support for the country’s ambitious macroeconomic and structural reform agenda for the next three years.
The programme called for improving public finances and reducing public debt through tax policy and administrative reforms to strengthen revenue mobilisation and ensure a more equal and transparent distribution of the tax burden.
The IMF also suggested concrete efforts for cost-recovery in the energy sector and state-owned enterprises. The Fund argued that this would help eliminate or reduce the quasi-fiscal deficit that drains scarce government resources.
The IMF also suggested modernising the public finance management framework to increase transparency and spending efficiency. It urged Pakistan to reduce fiscal deficit by tax policy revenue mobilisation measures and to eliminate exemptions, curtail special treatments, and to improve tax administration.
Published in Dawn, October 23rd, 2021