ISLAMABAD: Pakistan is set to move swiftly on reducing massive fuel and electricity subsidies and banning about 30 luxury imports to contain fiscal and trade deficits under a commitment given to the International Monetary Fund (IMF) to secure an economic bailout.

On the first day of the formal talks with the IMF mission led by Nathan Porter in Doha, Finance Minister Miftah Ismail virtually leading the country’s economic team cleared uncertainty on two counts — that the new coalition government would stay in office and take tough decisions, undertake reforms committed in the original fund programme and complete structural benchmarks.

Informed sources said the talks opened on a healthy note as the two sides appeared converging to key principles — separating the state’s economic decision-making from politics.

These sources said the government would be revising fuel and energy prices within days and impose a complete ban, instead of increasing duties, on a total of about 30 luxury items major among them vehicles and mobile phones besides some other no-so-big items to contain imports and thus external account. These announcements would be made shortly to progress talks towards the successful completion of the revised programme.

Miftah assures IMF of taking immediate ‘tough’ decisions

These steps were considered important to clear the backlog of structural benchmarks. Going forward, the sources said Mr Ismail also proposed to the mission that while existing benchmarks would be honoured, the extension in time by one year and increase in the size of the programme by $2bn should be linked to strategic structural benchmarks that address the root causes rather than delivering on fiscal targets. There is no point in setting benchmarks under which basic challenges remain unaddressed and come back again and again despite painful measures.

It was thus agreed to set privatisation of power companies and other loss-making state-owned entities (SOEs) as a structural benchmark in the revised and upgraded fund programme to $8bn so that circular debt flow is addressed forever and debt stock is dissolved through privatisation proceeds.

Another benchmark would be to remove the role of the political government from price setting by giving power tariffs in the hands of the National Electric Power Regulatory Authority (Nepra) and limiting the government powers to the extent of taxation on POL pricing and allowing the oil companies to fix retail rates on a daily or weekly basis.

The ministry of finance said the 7th review mission of the IMF programme kicked off with the finance minister’s virtual meeting with the mission chief Nathan Porter. Minister of State for Finance & Revenue Dr Aisha Ghous Pasha, Secretary Finance, Acting Governor State Bank of Pakistan and Chairman Federal Board of Revenue also participated.

IMF’s resident representative in Islamabad Ester Perez Ruiz said the fund team was in Doha for May 18-25 talks as part of ongoing discussions with the Pakistani authorities on economic developments and policies to promote macroeconomic stability.

The finance ministry said the first batch of the government team of the finance ministry, State Bank of Pakistan and FBR had already reached Doha. The finance minister and minister of state will be joining the team in Doha early next week to conclude the discussion with the expectation to clinch an agreement for IMF’s continued support until the successful completion of the programme.

The statement said Mir Ismail “reaffirmed the government’s commitment to undertake the reforms envisaged under the program and to complete the structural benchmarks”. IMF Mission Chief shared fund’s assessment of the challenges facing the economy. “He sensitised that Pakistan’s economy demanded both immediate and long-term measures”, the statement said.

The finance minister assured that the government understood the current economic woes and “agreed that it will have to take tough decisions while mitigating the effects of inflation on the middle to low-income groups”. He told the fund to also consider that the few factors that have adversely affected the economic situation were beyond the control of the government.

These included exogenous factors like supply shocks, commodity supercycle and the Russia-Ukraine conflict due to which commodity prices further soared. These factors were putting pressure on the current account as well as foreign exchange reserves.

The minister assured that the government “would take measures to reduce the burden on the economy while protecting the vulnerable sections of the population”. The minister further stated that we should aim to address structural issues so that Pakistan end its fiscal deficit and move towards sustainable growth. “Both sides showed keen interest to complete the review successfully”, the statement said.

Published in Dawn, May 19th, 2022

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