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Talks with IMF begin

January 09, 2013


ISLAMABAD, Jan 8: With total foreign exchange reserves at $13.8 billion and exchange rate touching Rs99 to a dollar, Pakistan and International Monetary Fund have formally entered into a two-week dialogue on post-programme monitoring of the macroeconomic situation and future cooperation.

A senior government official said the IMF delegation led by Jeffrey Franks started technical level discussions with Pakistan authorities on Tuesday that would continue for four days before being joined for policy level discussions by Finance Minister Abdul Hafeez Shaikh until January 20, 2013.

An official said the government team comprising officials of finance ministry and Federal Board of Revenue (FBR) briefed the visiting delegation about external account, latest fiscal position and revenue measures being taken by the tax authorities to reduce a widening gap between actual collection and revenue target set for the current fiscal year.

He said the four-day technical level talks would focus on latest macroeconomic situation, up-to-date expenditure on the fiscal side and projected fiscal operations for the remaining five months of the current fiscal year.

With election related expenditures in mind, the two sides would also take into account the medium-term economic outlook for next two years with special emphasis on difficult global economic situation and increased dole outs for energy sector subsidies.

The sources said the government team was consistent about its projections for current year GDP growth rate of 4.2 per cent but the IMF had slightly lower estimate for economic growth at about 3.5 per cent.

Similarly, the government side estimated the rate of inflation for the current year at less than 10 per cent while the Fund believed it would go beyond 11 per cent with the impact of increased support price for wheat and energy prices, particularly due to heavy reliance on petroleum products for transportation instead of compressed natural gas and maximum dependence on furnace oil based power generation.

The two sides would exchange their sector-wise projections including agricultural, industrial and services growth rate to justify their macroeconomic estimates and inflation.

The real cause of concern for the IMF is the continuous fiscal injection in the power sector, an official said. He said the recent disbursement of about $700 million by the United States had mostly been consumed by power sector subsidies, particularly in meeting additional furnace oil requirements for power sector. With such expenditures to continue in the short term, the government’s projections for fiscal deficit were unlikely to materialise.

On the other hand, the foreign exchange reserves at about $13.8 billion including $4.8 billion held by private banks and $9 billion by the central bank would remain under pressure owing to additional requirements for oil imports and panic situation in the market.

When contacted finance ministry’s official spokesperson and adviser Rana Asad Amin said he did not know about the ongoing dialogue because he had not been part of the discussions with the IMF team.

He, however, said the IMF mission was visiting Islamabad as part of its biannual post-programme monitoring because Pakistan had availed IMF funds more than its quota.

Another official said the discussion about a fresh IMF programme could not be ruled out at the policy level discussions starting early next week even if it may be formalised by the next government.

He said the visit of the IMF mission was also in continuation of recently held dialogue in Washington DC to review various aspects of the economy including the outlook for Pakistan’s economy for remaining five months of the current fiscal year and beyond, including Pakistan’s fiscal and external position, monetary aggregates and steps required to sustain macroeconomic stability.

The two sides will also discuss with the policy framework including the measures needed to strengthen economic growth, mobilise domestic resources and reforms in energy sector as well as other areas.