Pak’s 10-Day Fail: Why Cash-Strapped Islamabad Couldn’t Get IMF Deal | Exclusive from Local Sources

Despite the negotiations for 10 days, the International Monetary Fund (IMF) and Pakistan have failed to lead the expected outcome of immediate release of $1.1 billion to save the country from bankruptcy, local sources told CNN-News18 exclusively, even as both the sides are claiming “progress”.

The Pakistan government has received a memorandum on the terms and conditions from the IMF for the completion of a $7-billion loan programme, Finance Minister Ishaq Dar said on Friday, but acknowledged that both sides are yet to clinch a staff-level agreement on the much-needed bailout for the cash-strapped country. Dar made the statement after the IMF delegation, which left Pakistan on Thursday night, said virtual discussions would continue on the ninth review of the programme.

As per the statement by Nathan Porter, head of the IMF mission, they would continue virtual discussions from Monday.

Pakistan, whose foreign exchange has dropped below USD 3 billion, is in desperate need of financial assistance and a bailout package from the IMF to prevent it from economic collapse. The country only has money to cover imports for a month, and the skydiving value of Pak rupee is increasing its circular debt day by day.

WHAT IMF TOLD ISLAMABAD: SOURCES’ VERSION

The IMF, according to sources, pointed out the problems with Pakistan. These include:

• Political instability: More than 40% legislative assemblies are not in existence.
• Economic instability: The country saw the highest inflation in the past 47 years, 27% only in January 2023.
• No reserves: Near empty foreign exchange reserves.
• Election year: The Election commission would need billions of rupees to arrange local and general elections.
• Economic policies: Another problem pointed out was the unclear and vague economic policies, which change and fail, not every month, but every week.
• Mini budget: Pakistan would have to impose a mini budget on its taxpayers of Rs 170 bn, which could lead to drastic effects, such as petrol and diesel non-availability. Many sectors are failing in the country and the burden of mini budget could be the last nail in the coffin.

Experts, who have observed such arrangements in the past, say IMF loan arrangements will prevent the default, but will bring a tsunami of price hikes and hence poverty.

THE MEMORANDUM

The Memorandum of Economic and Financial Policies (MEFP) is a key document that describes all the conditions, steps, and policy measures on the basis of which the two sides declare the staff-level agreement.

Once the draft MEFP has been shared, the two sides discuss the policy measures outlined in the document. Once these are finalised, a staff-level agreement is signed, which is then forwarded to the International Monetary Fund’s (IMF) executive board for approval.

An IMF mission led by Porter visited Islamabad from January 31 to February 9 to hold discussions under the ninth review of the authorities’ programme supported by the IMF Extended Fund Facility (EFF) arrangement. The successful completion of the ninth review will bring the cash-strapped country USD 1.2 billion in the form of the next tranche.

As the visiting delegation left without a concluding statement, there was some confusion about the outcome of the talks and whether a draft MEFP had been shared.

Dar, however, insisted in Friday’s press conference that there was no confusion. “We insisted that they (the Fund delegation) give us the MEFP before leaving so we could look at it over the weekend,” he said, adding that the government and the IMF officials would hold a virtual meeting in this regard on Monday.

“I am confirming that the MEFP draft has been received by us at 9 am today (Friday),” he added.

“We will completely go through the [MEFP] over the weekend and will hold a virtual meeting with [Fund officials]. It will obviously take a few days.”

The finance minister acknowledged that reforms in certain sectors required by the IMF were in Pakistan’s interest, criticising the previous Pakistan Tehreek-e-Insaf-led government for “economic destruction and misgovernance”.

“It is necessary to fix those things,” he said. “These reforms are painful but necessary.”

The finance minister shared that the country would receive a USD 1.2 billion disbursement in the form of Special Drawing Rights after the review’s completion. SDRs are international reserve assets created by the IMF in 1969 and are allocated to member states to supplement existing official reserves.

MEASURES

Outlining the policy measures agreed upon between the government and the IMF, Dar said taxes amounting to Rs 170 billion would be imposed.He added, however, that the government would try to ensure that the taxes did not directly burden the common man.

“Secondly, we will implement the agreed-upon energy reforms through the federal cabinet,” he said, adding that the primary focus would be on minimising untargeted subsidies and reducing the “flow” in the gas sector to zero so there was no addition to the circular debt.

Talking about electricity prices, Dar said the country’s generation cost was around Rs 2-3 trillion, while only Rs 1.8 trillion was recovered, which resulted in an increase in either the circular debt or fiscal deficit. However, the entire difference in amount would not be recovered by increasing the tariff, he said.

With PTI Inputs

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