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Photo Source: Dawn

Pakistan Reader# 554, 10 February 2023

An inconclusive meeting: Pakistan heeds to IMF’s demands



Pakistan receives the Memorandum of Economic and Financial Policies (MEFP), the staff-level agreement remains elusive

Abigail Miriam Fernandez

On 10 February, Finance Minister Ishaq Dar announced that the government had received the Memorandum of Economic and Financial Policies (MEFP) from IMF in relation to the completion of the ninth review of a USD seven billion loan programme. However, he stated that the staff-level agreement with the IMF was still pending. This comes as the government and IMF conclude a 10-day discussion in Islamabad. FM Dar said, “We will completely go through the [MEFP] over the weekend and will hold a virtual meeting with [Fund officials]. It will obviously take a few days.” He added, “Once the MEFP has been finalised, they (IMF) have their own internal process and then a Board meeting is held. And then finally, when approval is given, the [tranche] is disbursed,” adding, “It is a standard process which can neither be shortened and hopefully they won’t extend it unnecessarily.”

Statements from the IMF
Following the meeting, IMF Mission Chief Nathan Porter said, “The IMF team welcomes the prime minister’s commitment to implement policies needed to safeguard macroeconomic stability and thanks the authorities for the constructive discussions.” He added, “The timely and decisive implementation of these policies along with resolute financial support from official partners are critical for Pakistan to successfully regain macroeconomic stability and advance its sustainable development.”

Agreements made with the IMF
Pakistan has agreed to the following through the Memorandum of Economic and Financial Policies (MEFP).
1. Imposing taxes amounting to Rs170 billion
As per the agreement, Pakistan would impose taxes amounting to Rs170 billion. In order to do this, the government would introduce a finance bill or ordinance, depending on the political situation in the country.

2. Minimising untargeted subsidies in the gas, and energy sectors and avoiding gas sector’s circular debt
The second agreement includes the implementation of promised made on energy reforms through the federal cabinet. The government has decided to minimise untargeted subsidies and reduce the “flow” in the gas sector to zero in order to avoid additional circular debt.

3. Raising the petroleum development levy on diesel to Rs50 through two Rs5 hikes on 1 March and 1 April
The government has already begun implementing this agreement as they raise the petroleum development levy (PDL) on petrol to Rs50 per litre while the PDL on diesel would also be raised to Rs50 in the coming months.

4. Increasing allocation of BISP to Rs400bn
The government has also agreed to increase the allocation to the Benazir Income Support Programme (BISP) to Rs400 billion from Rs360 billion currently to assist the vulnerable people hit by inflation.

FM Dar criticises the previous PTI government for its economic woes
FM Dar criticised the previous Imran Khan-led government stating that they are to be blame for the country’s “economic destruction and misgovernance.” Further, he claimed that there was a credibility gap because the IMF did not trust the government because of the PTI government’s actions. He said, “They say not only did the previous government not implement the agreement but also reversed when the vote of no-confidence was brought [against Prime Minister Imran Khan].

Pakistan’s IMF journey
Pakistan entered a USD six billion IMF programme in 2019. This was later expanded to USD seven billion. Currently, around USD 3.5 billion of the USD 6.5 billion total packages are yet to be disbursed. The disbarment is currently stalled as Pakistan is unable to complete the ninth review, which according was initially scheduled to be completed in the first week of November 2022. However, the talks kept facing delays. The ongoing technical discussion would continue till 3 February, following which the second phase of policy negotiations would continue till 9 February to finalise a memorandum of economic and financial policies.

References
Khaleeq Kiani, “Govt, IMF finalise ‘prior actions’, no word yet on key accord,” Dawn, 10 February 2023
Tahir Sherani, “Pakistan agrees to IMF conditions, staff-level accord still pending: Dar,” Dawn, 10 February 2023

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