Pakistan, IMF talks on revival of stalled programme remain inconclusive

The International Monetary Fund (IMF) late Wednesday delayed the revival of the stalled $6-billion programme under the External Financing Facility (EFF) for Pakistan.

The revival was expected to bring stability to the financial markets, the fast-weakening Pakistani rupee, and the depleting foreign exchange reserves, as the government had pinned hopes on the programme's resumption.

Pakistan failed to convince the IMF, as both sides could not reach a staff-level agreement despite week-long negotiations in Doha, Qatar, from May 18-25.

I have just returned from Doha after talks with the IMF. Our delegation had very useful and constructive discussions with the IMF team over the last week.

We discussed significant slippages in FY 22, caused in part by the fuel subsidies given in February 2022. 1/3

— Miftah Ismail (@MiftahIsmail) May 26, 2022

We discussed targets for FY 23, where, in light of high inflation, declining forex reserves and a large current account deficit, we would need to have a tight monetary policy and consolidate our fiscal position. Thus govt is committed to reducing the budget deficit in FY23.
2/3

— Miftah Ismail (@MiftahIsmail) May 26, 2022

The IMF team emphasised the importance of rolling back fuel & power subsidies, which were given by the previous administration in contravention of its own agreement with the Fund.

Govt is committed to reviving the IMF programme & put Pakistan back on a sustainable growth path./

— Miftah Ismail (@MiftahIsmail) May 26, 2022

The Fund, in a statement, has emphasised the abolition of subsidies on petroleum products and electricity, among other conditions, as a prerequisite for the programme's revival.

Following the conclusion of the talks, IMF Mission Chief for Pakistan, Nathan Porter, said the Fund held constructive discussions with the Pakistani officials, which aimed at reaching an agreement on policies and reforms. “Mission has held highly-constructive discussions with Pakistani authorities aimed at reaching an agreement on policies and reforms that would lead to the conclusion of the pending seventh review of the authorities’ reform programme, which is supported by an IMF Extended Fund Facility arrangement."

Porter said considerable progress was made during the mission, including the need to continue to address high inflation and the elevated fiscal and current account deficits, while ensuring adequate protection for the most vulnerable.

The Fund also appreciated the State Bank of Pakistan's (SBP) decision to hike the policy rate from 12.25% to 13.75% — a move made to control the increasing inflation in the country.  But the mission's chief noted that on the fiscal side, there were deviations from the policies agreed upon in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February.

The PTI-led government had originally agreed on raising the price of electricity and petroleum products, but later in March, Imran Khan announced subsidies on both commodities — and the current government is continuing with the same arrangement.

"The IMF team emphasised the urgency of concrete policy actions, including in the context of removing fuel and energy subsidies and the FY2023 budget, to achieve program objectives," Porter said in the statement.

The mission chief added that the IMF team looks forward to continuing its dialogue and close engagement with Pakistan’s government on policies to ensure macroeconomic stability for the benefit of all of Pakistan’s citizens.

The Ministry of Finance, in a statement, said it would continue negotiations with the Fund next week, while Finance Minister Miftah Ismail left for Pakistan.