Pakistan’s talks with IMF over bailout package hit a snag: Report

The Pakistani government's talks with the IMF to secure a bailout package to stave off impending sovereign bankruptcy have hit a snag as the two sides have been unable to agree on external financing estimates and precise domestic fiscal measures, according to a media report on Thursday.

A clear plan for external financing and domestic budgetary steps, together with substantial adjustments to energy costs, should lead to the IMF visiting mission communicating at least a draft Memorandum on Economic and Fiscal Policy to the authorities the day before the scheduled end of the talks on February 9, a newspaper reported. "We have not received the MEFP proposal as of Wednesday evening," a senior government official said, adding that "the fund's reservations to the final action plan, both in terms of fiscal measures and external funding sources, still exist".

Pakistan entered the $6 billion International Monetary Fund (IMF) program in 2019 under the Imran Khan government, which was increased to $7 billion last year. The ninth revision of the program is currently underway and negotiations are underway between IMF officials and the government to release US$1.18 billion.

However, Minister of State for Finance and Revenue Aisha Ghaus Pasha said: “We are very close to completion. She said MEFP will hand over to Pakistan IMF once all issues are finally resolved. In a written statement, the finance ministry said talks with the IMF continued on Wednesday and "focused on the fiscal table, financing, etc. There is broad agreement on reform actions and measures." It added that the head of the mission also invited the finance minister and informed him about the negotiations. "The mission is working to bring it all together and finalize the MEFP," said the finance secretary, who declined to comment on whether the planned talks would be extended to reach a staff-level agreement.

Sources said the IMF has agreed to ease the fiscal plan by about Rs 500 billion in flood recovery spending, so a primary balance deficit of around Rs 600 billion will be covered by spending cuts and additional tax measures. However, the fund was still unconvinced about external financial commitments, especially from friendly countries – Saudi Arabia, the United Arab Emirates and China – among other multilateral financing.

The IMF also wanted to see electricity and gas tariff hikes implemented immediately given the legacy of defaults. The government has agreed to the required adjustment in power tariffs to cover a gap of about Rs 950 billion for the current fiscal year, but it has yet to work out the exact load for various categories and cross-subsidies to protected consumers and the extent of consumption in that category.

Informed sources said the visiting IMF mission led by Nathan Porter had a virtual meeting with Prime Minister Shahbaz Sharif in addition to meeting Finance Minister Ishaq Dar in person. The mission was assured of full implementation of the remaining measures, including an increase in electricity tariff by around Rs 7.65 per unit of the average basic tariff, coupled with quarterly adjustments starting at more than Rs 3 per unit and tapering off thereafter.

The IMF mission reportedly approved the adjustment of the gas tariff, which should at least cover the circular debt flow in the first place. This would mean around Rs 100 per unit increase in average gas rates as set by the Petroleum and Natural Gas Regulatory Authority (Ogra).