ISLAMABAD:
The International Monetary Fund (IMF) board on Monday approved a $1.3 billion loan, granting waivers for non-compliance with some key conditions and securing a new commitment from Pakistan to introduce new fiscal measures to offset the impact of a huge revenue shortfall.
To win the IMF board, Pakistani authorities had committed to fulfilling two prerequisites: ensuring the issuance of a restructuring order for an undercapitalized bank and publishing the diagnostic assessment report on governance and corruption, the latter undermining its political capital.
The global lender approved nearly $1.1 billion under the Expanded Financing Facility (EFF) and another $220 million under the Resilience and Sustainability Facility (RSF), in the decision that would keep the $8.4 billion in two lending programs on track.
The Finance Ministry faced criticism from within as it stuck to the terms agreed with the IMF. The Ministry of Finance bureaucracy played a key role in keeping the program on track.
The IMF program stabilized the economy and the Finance Ministry posted its first primary budget surplus in years and halted an exponential rise in public debt.
The Prime Minister praised the performance of the economic team, particularly Finance Secretary Imdad Ullah Bosal.
The $1.1 billion amount is the third tranche of the $7 billion economic stabilization plan, approved on the basis of Pakistan’s economic performance for the January-June period of the last fiscal year.
However, in order to pave the way for the approval and continuation of the program, the board accepted Pakistan’s request to grant waivers for non-compliance with certain conditions for the end-June period and relaxed at least three conditions for the next review.
Although the IMF program has brought economic stabilization, structural reforms have yet to take root despite the call by the national coordinator of the Special Investment Facilitation Council (SIFC) for a growth plan.
The government sources said the IMF board had waived the condition of the quantitative performance criterion of spending Rs599 billion under the Benazir Income Support Program (BISP).
Spending remained below the IMF target. However, the central bank outperformed on another condition of building net international reserves after purchasing $8.4 billion in the local market.
The sources said the IMF also relaxed the end-December condition on primary fiscal surplus due to the impact of floods, adjusted the target for filing new tax returns and BISP expenditure.
The government also fell short of meeting the fiscal target and provincial spending on health and education. But it met the conditions of restricting the circular debt of the power sector and increasing the maturity of domestic debt to reduce refinancing risks.
The government successfully achieved eight structural benchmarks intended to make improvements in key areas to address economic vulnerabilities.
However, he could not fulfill a few other structural conditions related to amending the laws on state-owned enterprises, imposing federal excise duties on fertilizers and pesticides, and timely release of the Governance and Corruption Diagnostic Assessment Report.
The corruption assessment report was published with some delay, which the president of the Standing Finance Committee of the National Assembly described as an “indictment against the government and Parliament”.
The IMF board was informed that the publication of the corruption report had been delayed due to necessary consultations with government agencies. The Board on Monday also relaxed the deadline for publishing the action plan by the end of the month to address weaknesses related to corruption and governance.
The government assured the IMF that it would now amend laws on state-owned enterprises by August next year and was prepared to impose federal excise duties on fertilizers and pesticides as part of emergency measures to make up for the shortfall.
The Federal Board of Revenue missed its tax collection target for the first five months by 413 billion rupees by a wide margin and promised to impose a mini-budget from January. However, FBR Chairman Rashid Langrial said last month that even if the emergency measures had been agreed with the IMF, there would be no need to trigger them.
The sources said the government also failed to meet the condition of not granting further tax exemptions, as it granted the exemption on the import of sugar, which it had exported first, which created a deficit in the local market.
The central bank told the IMF board that it had exercised the right under the Banking Companies Ordinance to restructure and liquidate an undercapitalized bank as part of the IMF’s prior actions.
The board was assured that until the next review of the $7 billion deal is completed, the government would introduce new tax policy measures, if necessary, to make up for the revenue shortfall. He also assured that appropriate monetary policy would continue to contain inflation.
However, Lt Gen Sarfraz Ahmad, national coordinator of SIFC, a few days ago urged the central bank to reduce interest rates, reflecting the ground realities of low inflation around 6%.
The federal government promised the IMF that it would regularly adjust electricity and gas prices and reduce the state’s footprint.
The central bank also assured the IMF board that it would implement the flexible exchange rate.
