DOHA: The International Monetary Fund (IMF) late Wednesday delayed the revival of the stalled $6-billion programme under External Financing Facility (EFF) for Pakistan.
The International Monetary Fund (IMF) on Wednesday emphasised upon Pakistan the urgency of “removing fuel and energy subsidies” to achieve programme objectives.
Finance Minister Miftah Ismail had earlier this week said he would convey to the IMF that fuel and energy subsidies — which were introduced by the previous PTI government — could not be reversed as the “nation cannot endure it”.
But in a statement issued earlier today, the IMF said it had “emphasised the urgency of concrete policy actions, including in the context of removing fuel and energy subsidies and the FY2023 budget, to achieve program objectives”.
Pakistan failed to convince the IMF, as both sides could not reach a staff-level agreement despite week-long negotiations in Doha, Qatar, from May 18-25.
The Fund, in a statement, has emphasised the abolition of subsidies on petroleum products and electricity, among other conditions, as a prerequisite for the programme’s revival.
Following the conclusion of the talks, IMF Mission Chief for Pakistan, Nathan Porter, said the Fund held constructive discussions with the Pakistani officials, which aimed at reaching an agreement on policies and reforms.
“Mission has held highly constructive discussions with Pakistani authorities aimed at reaching an agreement on policies and reforms that would lead to the conclusion of the pending seventh review of the authorities’ reform program, which is supported by an IMF Extended Fund Facility arrangement.”
The Fund also appreciated the State Bank of Pakistan’s (SBP) decision to hike the policy rate from 12.25% to 13.75% — a move made to control the increasing inflation.
But the mission chief noted that on the fiscal side, there were deviations from the policies agreed upon in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February.
The PTI-led government had originally agreed on raising the price of electricity and petroleum products, but later in March, Imran Khan announced a subsidy on both commodities — and the current government is continuing with the same arrangement.
According to the IMF, the mission held “highly constructive discussions” with the Pakistani authorities aimed at reaching an agreement on policies and reforms that would lead to the conclusion of the pending seventh review of the authorities’ reform programme.
It said the considerable progress was made during the mission, including on the need to continue to address high inflation and the elevated fiscal and current account deficits, while ensuring adequate protection for the most vulnerable.
“In this regard, the further increase in policy rates implemented on May 23 was a welcome step. On the fiscal side, there have been deviations from the policies agreed upon in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February.”
Bilawal Bhutto Zardari
Meanwhile, Foreign Minister Bilawal Bhutto-Zardari said the ongoing bailout deal between Pakistan and the IMF was “outdated” given a number of global crises.
“This IMF deal is not based on ground realities, and the context has absolutely changed from the time that this deal was negotiated,” Bilawal told Reuters on the sidelines of the World Economic Forum.
He said it would be justified for Pakistan to plead this case before the IMF in [current talks.
“This deal is a pre-Covid deal. It is a pre-Afghanistan fallout deal. It is a pre-Ukrainian crisis deal. It is a pre-inflation deal,” FM Bilawal said
Terming the deal “outdated” he said it would be unfair and unrealistic to expect a developing country like Pakistan to navigate geopolitical issues under the current agreements.
“We have to engage with the IMF and we have to keep Pakistan’s word to the international community … However, going forward, it is very legitimate for Pakistan to plead its case,” Bilawal said.
The newly-elected government began talks with the Fund a week ago over the release of a $1 billion tranche under an Extended Fund Facility, a process slowed by concerns about the pace of economic reforms in the country.
A $6 billion IMF bailout package signed by former prime minister Imran Khan in 2019 has never been fully implemented because his government reneged on agreements to cut or end some subsidies and to improve revenue and tax collection.
Islamabad has so far received $3bn, with the programme due to end later this year. Officials are seeking an extension to the programme through to June 2023, as well as the release of the next tranche of $1bn.