The International Monetary Fund (IMF) is continuing analyzing Pakistan’s fiscal situation despite the fact that time is running short, particularly in light of the flood-related expenses that it believes have altered the macroeconomic assumptions of the fund programme.
The Ministry of Finance responded to a media question about the delay in the 9th review by saying that the IMF “understands that the floods have changed the macroeconomic assumptions on which the programme was designed; therefore, detailed analysis is being conducted by their team using the data provided.”
In an effort to wrap up the 9th review this month so that the next tranche of around $1.18 billion could be approved by the IMF’s executive board and disbursed before the Christmas and New Year’s vacations, the two parties had been practically in contact for more than a month. Although the finance ministry stated that the “IMF team is expected to visit Islamabad soon for completion of the 9th review,” the policy level negotiations have not yet been finalized.
According to the standard procedure, the fund staff mission must come to an understanding with the appropriate authorities for the implementation of the programme, and it takes at least a week for the board members to hold a meeting based on the staff agreement. A further delay would prevent the IMF executive board from being available till the first week of January.
As a result of Pakistan’s severely low foreign exchange reserves, the central bank authorities have started restricting dollar releases, including for necessities like oil and petroleum products.
Prior to the maturity date of December 5, Finance Minister Ishaq Dar and the State Bank of Pakistan have already declared that they will repay $1 billion in Sukuk (Islamic bonds) later this week. The central bank’s reserves were worth $7.8 billion as of November 18. The petroleum division and oil companies have been warning about supply disruptions and lamenting the lack of foreign currency.
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The government released a revised fiscal framework last week, and the fund showed close to Rs1 trillion in slippages for the current fiscal year, including over Rs 900 billion in higher than anticipated interest payments along with future income shortfalls.
The fund staff had been examining the government’s position on flood-related expenditure on the budget and related financing flows from multilateral and bilateral lenders and donors, even though Pakistan would be asking for a few waivers on slippages from the fund programme due to floods. Additionally, according to fund sources, there was remote communication between the two parties “over policies to reprioritize and better target support toward humanitarian and rehabilitation needs, while also accelerating reform efforts to preserve macroeconomic and fiscal sustainability, including with ongoing financial support from multilateral and bilateral partners.”
The policy level talks were originally scheduled to begin the last week of October, were moved to November 3, and then were postponed again due to discrepancies in the two parties’ estimates. Due to a lack of clarity regarding the financial requirements related to floods for the current fiscal year and a declining revenue stream as a result of import control as expenditures already go south, the authorities had been having trouble setting up formal talks on the overdue 9th review of the $7 billion Extended Fund Facility.
The finance ministry claimed last week that the IMF had expressed its willingness to sympathetically view the targeted assistance for the poor and vulnerable, especially those affected by the floods, and that the two parties had agreed that expenditure estimates for flood-related humanitarian assistance during the current year will be firmed up along with estimates of priority rehabilitation expenditure.
