Talks on the 9th review of the International Monetary Fund (IMF) Enhanced Fund Facility (EFF) have been further delayed as the Fund linked the arrival of its mission to Islamabad with the finalisation of macroeconomic framework with necessary adjustments.
Sources in Washington last week claimed that the schedule for talks between the IMF and Pakistan had been readjusted, but that the negotiations were ongoing. However, there were other reports claiming that the talks were rescheduled after last month’s release of a World Bank report on flood damages in Pakistan.
This continued uncertainty will add to the growing fears of default. Therefore, it is crucial that the hurdles which are causing delays are addressed urgently.
These are mainly the lack of clarity on flood-related financial requirements for this fiscal year and declining revenue stream in the wake of import controls. Some outstanding issues pertaining to the energy sector also have to be addressed according to official sources.
According to the Finance Ministry, Finance Minister Ishaq Dar held an online meeting with Nathan Porter, IMF Mission Chief for Pakistan on Thursday and the two sides discussed the progress made with the ongoing IMF programme, particularly the impact of floods on macroeconomic framework and targets for the current year.
The Finance Ministry maintained that the IMF indicated its willingness to sympathetically view the targeted assistance for poor and vulnerable, especially flood victims. It was agreed that expenditure estimates for flood-related humanitarian assistance during the current year will be firmed up along with estimates of priority rehabilitation expenditure.
Pakistani authorities had been looking around for additional revenues, including on profitability of the financial sector and higher revenue stream from the State Bank’s profits, but there has been no luck in that regard.
The situation does not look good as Pakistan was behind the tax-to-GDP ratio target by almost 0.8pc of GDP. The financial sector claims that the IMF is demanding new taxes to increase liquidity and avoid fiscal deficit expansion. The government requires at least Rs800 billion, which is only possible through new taxes, something that can be difficult for the government amid a faltering economy and political unrest.
