Pakistan, IMF talks on seventh review start today

Pakistan and the IMF will kick-start virtual parleys on Friday (today) for the completion of the seventh review under the Extended Fund Facility (EFF), where the PM’s relief package and granting another tax amnesty for the industrial sector will be major thorny issues between the two sides.

Pakistani authorities have assessed that the PM’s relief package for reducing petrol and diesel prices by Rs10 per litre and Rs5 per unit in electricity prices would bring down the rising inflationary pressures directly by 0.6 percent on a monthly basis. There will be some indirect impact as well on CPI-based inflation in the coming months in the wake of these relief measures.

However, the IMF staff would raise questions about the sustainability of the fiscal deficit because there might be pressures on the expenditures side because of its negative impact on the rising current account deficit. "These kind of landmines will have an impact on the current account deficit after four to six months and someone will have to absorb the burden of such doled out packages," said one official who understands the dynamics of Pakistan’s economy, while talking to this scribe here on Thursday.

Pakistan’s current account deficit widened to $11.6 billion in the first seven months of the current fiscal year and independent economists are predicting that it might touch the $20 billion mark for the first time in the country’s history. The pace of imports was also reduced in the last month, but it remains to be seen how much this will impact the current account deficit.

Pakistan and the IMF team would hold technical level talks for one week, and then policy level talks might take three to four days to conclude the Seventh Review under the EFF arrangement. It might be wishful thinking of Pakistani authorities to complete an outstanding review in a hurry because the last review (6th) took almost nine months to conclude. But there is a limited time-frame left for the completion of the 7th, 8th, and 9th reviews till September 2022 for the completion of the EFF programme within the envisaged time-frame.

The PTI-led government is all set to replicate an old programme introduced during the Musharraf and PPP-led regimes in 2008 and 2009, which was known as Price Differential Claims (PDCs), to reduce the prices of POL products in the domestic market. But these PDCs were never reimbursed to Pakistan State Oil (PSO) and other OMCs, and their amount remains outstanding even after almost 12 years. With these measures, it seems that the government has entered into election mode. It remains to be seen how the IMF will formally respond to this massive doled out package, as apparently it seems like a total reversal of the Fund-sponsored programme.

The government had estimated a utilisation of Rs 300 to Rs 350 billion for these two relief measures, claiming that the additional revenues collected by the FBR would be used to finance them.would not have any impact on the budget deficit for the current fiscal year.

Originally published in The News