The first round of technical talks between the International Monetary Fund (IMF) and a cash-strapped Pakistan concluded on Friday, with Pakistani Prime Minister Shehbaz Sharif terming the IMF bailout conditions as something “beyond our wildest dreams”.
Stating that IMF is giving a “tough time” to Finance Minister Ishaq Dar and his team, the Pakistan PM on Friday hinted that harsh measures have to be taken to revive the stalled loan programme.
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During the four-day talks, IMF Pakistan Mission Chief Nathan Porter was briefed by the Finance Minister on the “fiscal and economic reforms and measures being taken by the government in different sectors”.
After revising the macroeconomic framework, the Pakistani authorities said that the real GDP growth is projected to slash from 5 per cent to 1.5 per cent to 2 per cent, and inflation is going to escalate form 12.5 per cent to 29 per cent in the current fiscal year, a Geo News report stated.
According to a report in the newspaper Dawn, the lender has set several conditions for resuming the bailout, including an increase in power tariff, restoration of unrestricted imports and raising the petroleum development levy on diesel.
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The IMF views the poor performance of the power sector, whose circular debt has reached Rs 2.9 trillion, as a major threat to the economy. The IMF’s demand to discontinue the exemption for “lifeline electricity consumers”, i.e. those consuming under 300 units, can be a widely unpopular decision as almost 88 per cent of the country’s power consumers fall under this category.
The IMF funding is critical for Pakistan, which is left with only around $3.10 billion in foreign exchange reserves, that can only manage to cover three weeks of imports.
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The Fund has also demanded a raise in the Federal Excise Duty on sugary beverages upto 17% from the existing rate of 13%. This is likely to put the government in a tight spot as the sweetener owners enjoy political connections irrespective of the political divide in the country, reported Geo News.
Pakistan had secured a $6 billion IMF bailout in 2019, which was topped up with another $1 billion last year. The ongoing negotiations, to continue through February 9, are meant to clear the IMF’s 9th review of its Extended Fund Facility, aimed at helping countries facing balance-of-payments crises.
