Pakistan Reader# 552, 4 February 2023
Abigail Miriam Fernandez
On 3 February, Pakistan and the IMF concluded the first round of technical-level talks in Islamabad. This comes as an IMF delegation headed by Nathan Porter, began talks with the government on the completion of the ninth review on 31 January. The four-day talks were held with representatives from over seven departments and IMF representatives. During the talks, the government and IMF discussion focused on means to identify major fiscal gaps and discuss ways to curb them, details of expenditures and revenue performance to identify the policy measures that would have to be implemented in the next four months of the current fiscal year.
Following the first round of the talks, the IMF would share nine tables comprising macroeconomic and fiscal framework with the Pakistani authorities in preparation for holding the policy-level talks next week. Once Pakistan and the IMF reach a consensus on prescriptions to fix the economy by 9 February, the two will sign a staff-level agreement.
PM Shehbaz Sharif claims that the IMF was imposing conditions that were ‘beyond our wildest dreams’
After the first round of technical talks, Prime Minister Shehbaz Sharif stated that the IMF was imposing conditions that were ‘beyond our wildest dreams.’ During the apex committee meeting on terrorism, he stated that the IMF delegation was giving Finance Minister Ishaq Dar a ‘very tough time.’ He said, “Our economic challenges at this moment are unimaginable. The conditions we have to fulfil are beyond our imagination.” However, he agreed that Pakistan had no other option but to implement the IMF’s conditions.
IMF’s tough conditions
The IMF has put several tough conditions on Pakistan in order to bridge the fiscal gap. These include raising the petroleum development levy on diesel to Rs50 from the current Rs40 per litre or levying a 17 per cent GST on POL products or increasing the GST rate by one per cent from 17 to 18 per cent through a presidential ordinance.
Another tough pill to swallow entails the discontinuation of an exemption for lifeline electricity consumers to those consuming under 300 units, which is 88 per cent of power consumers in Pakistan. This comes as the IMF believes that the poor performance of the power sector in Pakistan is a major threat to the economy. To address this issue the fund may push for the discontinuation of the power subsidy that is being given to export-oriented industries.
The IMF has also demanded the restoration of unrestricted imports. Currently, more than 9,000 containers are stranded at the country’s ports as letters of credit are not being opened.
Additionally, the talks focused on the privatisation of loss-making state-owned enterprises, however, most of the points discussed are expected to be revised and finalized in the second round of technical talks.
However, as in the words of PM Shehbaz Sharif, Pakistan has no other option but to swallow these tough pills in an effort to get the approval of the 9th review of the IMF programme through which countries can being releasing loans to the cash-strapped country.
References
Mubarak Zeb Khan, “‘Harsh’ IMF conditions alarm those at the helm,” Dawn, 4 February 2023
“First round of technical talks with IMF concludes,” The News International, 4 February 2023
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