Pakistan begins crucial IMF virtual bailout discussions today

Cash-strapped Pakistan and International Monetary Fund are resuming their talks online today (Monday) after ten days of their face-to-face negotiations in Islamabad, reported 24NewsHD TV channel.

Pakistan which is facing a full-blown economic crisis in the face of depleting foreign reserves and impending default situation, is trying to unlock $1.18 billion stalled funding as part of a $6.5 billion bailout signed by the government with the global lender in 2019.

Finance Minister Ishaq Dar told reporters after the completion of face-to-face technical and policy-level talks with the IMF mission (which failed to reach an agreement) last week that "We will implement whatever has been agreed upon between our teams.”

In a statement, Pakistan IMF Mission Chief Nathan Porter confirmed talks were continuing and that considerable progress had already been made. 

However, the hold-up though sent the price of the country's government bonds tumbling again.

During IMF-Pakistan talks in Islamabad, the power sector and primary balance remained major issues. The IMF was pushing for the withdrawal of the Rs100 billion power subsidy to the export-oriented sector, as well as full recovery of the Rs952 billion power sector gap through tariff increases. However, the government was attempting to explain to the IMF team that settling the entire amount would be incredibly hard.

However, complying with the global lender’s conditions, Finance Minister Dar on Friday announced that the government would promptly introduce a mini-budget to generate Rs170 billion additional revenues in four months (about Rs510bn on annualised basis) and reform the power and gas sectors including through withdrawal of unbudgeted subsidies and tariff increases to stop flow of circular debt as prior actions agreed with the IMF to secure early disbursement of about $1.2bn tranche.

“We have positively completed everything and there is now no confusion on anything,” Dar said, adding the government on Friday morning also received from the IMF the draft Memorandum of Economic & Fiscal Policies (MEFP) that the government would go through this weekend and begin virtual meeting on it on coming Monday (today) to take the process forward.

Moving quickly to meet prior actions of the IMF programme, the Economic Coordination Committee (ECC) of the cabinet on Friday approved imposition of a special financing surcharge of Rs3.39 per unit in average power tariff, in addition to quarterly tariff adjustments of up to Rs3.21 per unit for one year and recovery of pending fuel cost adjustments of up to Rs4 per unit for about three months.

Besides this, the ECC meeting also approved discontinuation of power tariff subsidies to zero-rated industries as well as the Kissan package with effect from March 1.

Pakistan entered a 6 billion dollars IMF programme during former prime minister Imran Khan's government in 2019. The package was increased to USD 7 billion last year. Currently, ninth review of the programme is due for the release of USD 1.18 billion.