The International Monetary Fund (IMF) and Pakistan held another round of negotiations on Thursday, but they were unable to agree on a timetable for formal talks regarding the long-overdue ninth review of a $7 billion loan programme due to ambiguity surrounding the financial requirements for flood relief this fiscal year and a declining revenue stream as a result of import restrictions.
A senior source stated, “Dates for the ninth review could not be finalized,” following a Thursday online conference between Finance Minister Ishaq Dar and Nathan Porter, head of the IMF mission in Pakistan.
In an apparent effort to calm uneasy markets, Mr. Dar reaffirmed the government’s dedication to “effectively completing the IMF programme.”
The meetings, which were initially scheduled for the final week of October, were moved to November 3 and then continued to experience delays due to discrepancies in the two parties’ estimates.
In the face of unclear flood-related budgetary requirements and dwindling revenue, the government is unable to finalize its schedule.
The IMF expressed its willingness to sympathetically view the targeted assistance for poor and vulnerable citizens, especially those affected by recent flooding, the finance ministry said. “It was agreed that expenditure estimates for flood-related humanitarian assistance during the current year will be firmed up along with estimates of priority rehabilitation expenditure.”
The two parties talked about the development of the ongoing IMF programme, in particular how floods affected the macroeconomic framework and goals for the current year.
The statement read, “In this context, interaction at the technical level must be swiftly ended for moving forward with the 9th review.”
According to the game’s rules, all fiscal and monetary policy figures (past and prospective) must be agreed upon at the technical level in order for minor policy tweaks to be made and submitted to the IMF executive board for approval.
Pakistan would now include all costs associated with the floods in the budget, along with precise headings and spending schedules.
The sources claimed that due to the ongoing political unpredictability and deteriorating trend in tax collection, a few policy decisions had been put off over the previous few weeks. A senior official claimed there had been no discussion of the increasing tax burden, despite the fact that authorities had been seeking for additional sources of income, notably through the banking sector’s success and a greater revenue stream from the State Bank’s profits. Another official stated that there were some unresolved concerns pertaining to the energy industry that needed to be addressed.
Due to flood damages and the IMF’s insistence on maintaining the pledged tax-to-GDP ratio of at least 11 percent, the authorities have already hinted at requests for a number of concessions on performance standards.
Dr. Aisha Ghaus Pasha, the minister of state for finance, had earlier this week told a parliamentary panel, “Circumstances are onerous, but we must remain in the IMF programme and make additional structural modifications.”
The main reason Pakistan fell short of the target for the tax-to-GDP ratio was the rebasing of GDP, which increased the size of the economy.
On the other hand, because of import compression, expenses went over budget from July to September, and the trend in revenue collection appeared to be declining.
Pakistan would like the IMF to waive a few performance criteria, but these would need to be carefully negotiated between the two parties at the staff level.
The IMF mission will take a firmer stance and present Pakistan’s case to the IMF executive board for approval of the waivers based on Pakistan’s specific slippages and requests for modifications.
