ISLAMABAD: Pakistan kick-started the “toughest” technical-level talks with the International Monetary Fund (IMF) Tuesday to break the deadlock with the lender of the last resort and pave the way for striking a staff-level agreement.
Federal Minister for Finance and Revenue Ishaq Dar is leading the Pakistani side while IMF’s review mission is headed by Nathen Porter as the cash-strapped nation launches renewed efforts to complete the pending ninth review under the $7 billion Extended Fund Facility (EFF).
Initial discussions are expected to revolve around Pakistan’s plan for taking additional taxation measures to fetch over Rs200 billion through a presidential ordinance, rationalising expenditure, and hiking both electricity and gas tariffs for erasing the monster of the circular debt.
Analysts have termed the technical level talks “toughest” as the Fund has refused to give any leniency in its conditions set for the revival of the loan facility.
Pakistan is gripped by a major economic crisis, with the rupee plummeting, inflation soaring and energy in short supply. Prime Minister Shehbaz Sharif for months held out against the tax rises and subsidy slashing demanded by the IMF, fearful of backlash ahead of elections due in October.
But in recent days, with the prospect of national bankruptcy looming and no friendly countries willing to offer less painful bailouts, Islamabad has started to bow to pressure.
The government loosened controls on the rupee to rein in a rampant black market in US dollars, a step that caused the currency to plunge to a record low. Artificially cheap petrol prices have also been hiked.
“We’re at the end of the road. The government has to make the political case to the public for meeting these (IMF) demands,” former World Bank economist Abid Hasan told AFP.
“If they don’t, the country will certainly default and we’ll end up like Sri Lanka, which will be even worse.”
Sri Lanka defaulted on its debt last year and endured months of food and fuel shortages that sparked protests, ultimately forcing the country´s leader to flee overseas and resign.
IMF is asking govt to fill Rs600bn gap on fiscal front
The Washington-based lender is suggesting the toughest prescriptions on all fronts of the economy at a time when the foreign exchange reserves are persistently on the decline and touched the lowest ebb of $3.6 billion.
Although, the government had already implemented two major conditions including allowing adjustment of the rupee against the dollar and hiking record levels of a surge in petroleum prices ahead of the talks.
The IMF is asking the government to fill the yawning gap of Rs600 billion on the fiscal front through additional taxation measures or cutting down on expenditures in order to restrict the budget deficit and primary deficit within the desired limits.
Differences persisted over the exact fiscal gap and both sides will hold parleys to evolve consensus over the exact estimates for taking additional taxation measures through the upcoming mini-budget.
Pakistan and the IMF will hold technical-level talks from today to Friday and then the policy-level talks will commence finalising the Memorandum of Financial and Economic Policies (MEFP) document.
The IMF further demanded an increase in electricity tariff within the range of Rs12.50 per unit as Islamabad seemed to agree to hike the electricity tariff of Rs7.50 per unit in a staggered manner.
The government may be agreed to withdraw the un-targeted power sector subsidies of the electricity and gas sector to powerful groups during the upcoming parleys with the IMF. The gas tariff will also be hiked in the range of 74% for consumers.
“We will have to swallow bitter pills because the gap widened so much that now the economy cannot run with the approach of status quo. The country’s middle class will have to face the burden.
“We have made a plan to protect vulnerable and poor segments of the society while implementing the IMF conditions” top official sources stated while talking to a select group of reporters on Monday night.
The senior officials in a background discussion stated that the government wanted to insulate the poorest of the poor from swallowing bitter pills as the government would make all-out efforts to focus on two areas including introducing reforms and protecting poor and vulnerable segments from arising inflationary pressures.
The official said that Finance Minister Dar was trying to secure $4-5 billion from bilateral friends for engaging the IMF with the point of strength but it could not be materialised so there was no other option but to make renewed efforts to revive the stalled IMF programme.
The Federal Board of Revenue’s (FBR) high-ups are estimating that the recent devaluation of the exchange rate will help tax authorities jack up its revenue collection by Rs100 billion in the remaining period of the current fiscal year.
While referring to recommendations given by the National Austerity Committee to Prime Minister Shehbaz Sharif, the committee finalised recommendations to suggest all ministries including the Ministry of Defence slash expenditures by 15%.
The committee asks for surrendering all plots obtained by influential segments to more than one. In all, the committee’s recommendations if implemented could be Rs600-700 billion on a per annum basis. But there are big ifs and buts that who is going to implement these bold decisions which are now necessary to undertake for averting crisis situations.
