ISLAMABAD: With policy rate increased by 1.5 per cent, the International Monetary Fund (IMF) is set to declare a staff-level agreement with Pakistan on revival of $6 billion Extended Fund Facility (EFF) which has been ‘in recess’ since April.
Highly placed sources said told Dawn on Sunday that an IMF “statement [on staff-level agreement] could be released anytime shortly, most probably on Monday”. The statement would envisage ‘prior actions’ that would have to be met before the IMF’s executive board meeting to approve completion of sixth quarterly review of the programme and disbursement of $1bn, sometimes in new calendar year.
The sources said discussions between the two sides had concluded on Friday. The announcement of policy rate by the State Bank of Pakistan (SBP) was the last administrative and policy action in the domain of the economic team and stood accomplished. “Everything is agreed to, ready and finished, except legislative part,” the sources said.
Pakistan will have to meet ‘prior actions’ for approval by Fund’s executive board
The remaining items relate to legislative work — amendment to the SBP act and taxation measures to become part of the finance (amendment) bill — for which time was required to fulfil the legislative process. On both these items, the prior action requires approval of the bills by parliament.
While there was little difficulty on tax-related issues as the government has agreed to create additional revenue of about Rs170-180bn over the remaining part of the fiscal year on top of healthy recoveries in the first four months of the year, mostly through import-led growth, the amendment to the SBP law required teething debate and exchange of many drafts back and forth between Islamabad and Washington.
The government team that also included Law Minister Farogh Naseem and Adviser to the Prime Minister on Finance Shaukat Tarin was finally able to convince the IMF mission that a substantial level of autonomy to the SBP, especially those pertaining to protection from investigations, was already covered in the SBP Banking Services Corporation Ordinance 2001 that had been cleared by the parliamentary panels in routine and now passed by a joint session of parliament.
Other requirements of the SBP amendment draft have significantly been modified to a middle ground and could be taken up again by another joint session of parliament, an official said. “You will see a lot of difference between the SBP draft law approved by the federal cabinet in February and the fresh draft,” said the official, refusing to go into details.
Officials explained that the government had partially returned to the policy path given up in April 2021, albeit with certain modifications in line with the changed ground situation. The two sides were originally scheduled to conclude the talks on revival of the IMF programme on October 16 but continued face-to-face dialogue until October 28, followed by virtual discussions until last weekend.
Shaukat Tarin had conceded last week that five prior actions had been agreed, including State Bank of Pakistan (Amendment) Bill, withdrawal of tax exemptions and an increase in energy tariff. The prior action pertaining to tariff adjustment had already been met for now with a recent Rs1.39 per unit increase in power tariff, while the bills to end tax exemptions and give autonomy to the SBP had been prepared. The next tariff increase would take place by February-March 2022 as the power regulator is still in the process of conducting public hearings on tariff adjustments.
The government would also have to create some financial cushion during the year through sale proceeds of a few low hanging state-owned assets and ensure book adjustments in power sector entities involved in circular debt through declaration of dividends based on receivables on their accounts.
The government would have to divert its dividend share to clear payables. This would reduce circular debt by over Rs200bn and clear balance sheets of the entities on the basis of which the government would raise global depository receipts (GDRs) in the international market.
Shaukat Tarin had repeatedly said in recent days that the February agreement with the IMF had “tied his hands”, but according to a source close to him, he had been able to secure ‘reasonable relaxations’ without being able to change those ‘prior actions’.
Going forward, the government has agreed to shift thousands of accounts of a number of federal and provincial government entities worth trillions of rupees into a single treasury account under a set schedule to be monitored as structural benchmarks.
Published in Dawn, November 22nd, 2021