Talks begin with IMF on new bailout

Published May 14, 2024
The seal of the International Monetary Fund is at the headquarters building in Washington, DC, April 12, 2024 — AFP
The seal of the International Monetary Fund is at the headquarters building in Washington, DC, April 12, 2024 — AFP

ISLAMABAD: Pakistan and the International Monetary Fund (IMF) on Monday kick-started negotiations on 24th ‘longer and larger’ bailout programme, starting with an anticipated upfront fiscal adjustment of more than Rs1.6 trillion (1.5pc of GDP) in the upcoming budget.

Pakistani side, led by Finance Minister Muhammad Aurangzeb comprised Governor State Bank of Pakistan Jameel Ahmed, Chai­rman Federal Board of Revenue Amjed Zubair Tiwana and their respective teams while IMF mission chief to Pakistan Nathan Porter led the visiting side.

“The finance minister welcomed the IMF team and thanked them for the successful completion of the Stand-By Arrangement (SBA),” said a statement issued by the Ministry of Finance. He also updated the IMF team about “the improvement in the macroeconomic indicators over the course of the SBA and underscored the government’s commitment to continue with and expand upon the reform agenda”.

Informed sources said that while the two sides would remain engaged over sector-specific issues in the coming days, most of the spadework was already in place in the recently concluded nine-month SBA and future lines were also generally drawn that would need to be taken to the finish line before the presentation of federal budget in the parliament tentatively scheduled for June 6-7.

Aurangzeb briefs visiting team on improvements in major indicators

These sources said that fiscal adjustment of at least 1.5pc of GDP or about Rs1.6tr would have to be made in the coming budget through a combination of additional revenue measures coupled with expenditure rationalisation and privatisation. While the additional revenue measures would contribute loins’ share, the next few days of engagements would work out specific allocation of share for these three major areas.

The finance minister has alre­ady announced to have started working on pension reforms as one of the key expenditure rationalisation measures to be supported by fewer allocations for development spending. The focus on the revenue side would be on expanding the tax net by transforming the general sales tax into real value-added tax (VAT), notwithstanding its inflationary impact, coupled with expansion of the tax base to retail and wholesale traders, agriculture, reduction in income tax slabs and their uniform applicability to all incomes, irrespective of source to diversify the revenue sources.

Petroleum levy is also expected to be one of the key sources of non-tax revenue and its target is expected to be at least Rs1.1tr in the coming budget.

The government has already committed to the IMF to continue gas and electricity tariff adjustments ‘in a timely manner’ starting with the new fiscal year and simultaneously make efforts for energy cost reductions and the induction of the private sector to address circular debt.

It has also promised to continue tight monetary policy and switch to market-based exchange rate besides strengthening social security and SOEs, even though the fund expects major risks to reform programme owing to political unrest and geopolitical situation.

SOEs privatisation

Simultaneously, the finance minister also presided over a meeting of the Cabinet Comm­ittee on State-Owned Entities (SOEs) to conduct a review of implementation of the SOEs Policy 2023 and the periodic evaluation of financial and operational performance across SOEs. This would form part of the IMF reform agenda going forward.

Mr Aurangzeb directed the concerned ministries and divisions to submit proposals for the categorisation of their respective SOEs by May 20 so that the rationale for retaining any commercial functions within the public sector could be examined. The objective is to retain only the essential functions within the public sector and to assign the remaining functions to the private sector.

The Central Monitoring Unit (CMU) of Finance Division presented its ongoing work on compiling the Federal SOE Annual Financial Report for fiscal year 2023. The DG CMU informed the meeting that the data of all commercial entities had been obtained and collated, while the analytical work was currently underway.

The finance minister noted several gaps in governance and financial management of SOEs which needed to be addressed immediately. He called for filling the vacancies on the

BOD’s without delay and the SOEs that had not had their accounts independently audited, should get their audits completed forthwith.

A statement quoted the minister as saying that continued losses and fiscal haemorrhage had to be stopped as a national priority and hence SOEs restructuring and privatisation agenda should be expedited. The Committee directed the CMU to finalise and publish the report at the earliest after including the requisite analytical portions prescribed under the SOE Policy.

Published in Dawn, May 14th, 2024

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