Finance Minister Ishaq Dar announced on Friday that the government had received the Memorandum of Economic and Financial Policies (MEFP) from the International Monetary Fund (IMF) regarding the conclusion of the ninth review of a $7 billion loan program, indicating that a staff-level agreement with the lender was still pending.
The MEFP is a crucial document that outlines the criteria, steps, and policy measures upon which the two parties announce the staff-level agreement.
After sharing the draught MEFP, the parties discuss the policy measures described in the document. After these are finalized, a staff-level agreement is signed and sent to the Executive Board of the Fund for approval.
The minister made these remarks during an early morning press conference after an IMF delegation, which left Pakistan yesterday night after ten days of discussions with the government, issued a statement indicating that virtual negotiations would continue.
Between January 31 and February 9, the IMF and the government held talks. Due to the absence of a concluding statement from the visiting team, there was some misunderstanding regarding the outcome of the discussions and whether a draught MEFP had been distributed.
Today at his news appearance, Dar reiterated that there was no miscommunication. We insisted that they (the Fund delegation) provide us with the MEFP before departing so that we could review it over the weekend,” he said, adding that the government and Fund officials would conduct a virtual meeting on Monday to discuss this matter.
“I affirm that we have got the MEFP draught at 9 a.m. today,” he continued. “Over the weekend, we will thoroughly review the [MEFP] and hold a virtual meeting with [Fund officials]. It will take a few days.”
Pakistan accepts IMF requirements
During his press conference today, the finance minister admitted that IMF-required reforms in certain areas were in Pakistan’s best interest. He criticized the previous government led by the PTI for “economic ruin and mismanagement.”
Those issues must be addressed,” he stated. These adjustments are unpleasant but essential.
He pledged to continue his efforts to ensure Pakistan’s completion of the IMF program.
“After the MEFP has been finalized, the IMF conducts its internal process, followed by a Board meeting. Then, once approval is granted, the [tranche] is disbursed.
“It is a routine procedure that cannot be shortened and, ideally, will not be unnecessarily lengthened,” Dar added.
The finance minister disclosed that the government would get $1.2 billion in Special Drawing Rights upon completion of the review.
SDRs are international reserve assets developed in 1969 by the IMF and provided to member governments to supplement their existing official reserves.
What Pakistan and the IMF have agreed upon
- Imposition of taxes totaling Rs170 billion
- minimizing untargeted gas and energy sector subsidies
- ensuring there is no increase in the gas sector’s circular debt
- Increasing the diesel petroleum development levy to Rs50 by two Rs5 increases on March 1 and April 1.
- Increasing BISP allocation to Rs400 billion
Policy actions
Dar outlined the policy measures agreed upon by the government and the IMF and stated that taxes of Rs170bn would be imposed. He noted, though, that the government would attempt to avoid directly burdening the common man with taxes.
Depending on the circumstances, he said, the government will draught a financial law or an ordinance to levy the taxes. As soon as all concerns are resolved, preparations for the bill or ordinance will begin. He stated that a bill would be introduced if both houses of parliament were in session at the time; otherwise, an ordinance would be issued.
“Second, we will implement the agreed-upon energy reforms through the federal cabinet,” he said, adding that the key focus would be on minimizing untargeted subsidies and lowering the “flow” in the gas sector to zero so that the circular debt would not increase.
The minister stated that the government had already fulfilled its promise to increase the petroleum development levy (PDL) on petrol to Rs50 per liter and that the PDL on diesel will also be increased to Rs50 in the coming months.
He stated that the government and IMF had agreed that petroleum goods would not be subject to sales tax. Nonetheless, the general sales tax would be “modified” in the forthcoming financial measure.
“We have agreed to enhance the budget for the Benazir Income Support Programme (BISP) from its current level of Rs360 billion to Rs400 billion to assist the most vulnerable individuals affected by inflation.”
Country’s electricity generation cost
Dar stated that the country’s electricity generation cost was between Rs2 and Rs3 trillion, but only Rs1.8 trillion was recovered, resulting in a rise in either the circular debt or fiscal deficit. However, he stated that the entire disparity would not be compensated by increasing the price.
He stated that the IMF was working everything out according to a plan. “Our numbers have been negotiated. The procedure will be followed, and the cabinet, ECC, etc. will be involved.”
In response to a question, he stated that the finance team was “happy” with the IMF’s power tariff discussions.
The minister stated that despite the unstable state of foreign exchange reserves. Obligations with friendly nations would be met and inflows will be received. “There is no need for alarm. Similarly, this nation has lived on $414 million in foreign reserves.
He said, “The State Bank is managing.”
Due to the PTI government’s actions, the IMF did not trust the government, Dar said. “According to them, not only did the previous government fail to follow the agreement. But it also went back on its word when a vote of no confidence was moved against Prime Minister Imran Khan.”
“The discussions were difficult, but we only agreed to what was feasible,” he stated.
IMF statement
In his final statement, IMF Mission Chief Nathan Porter said, “The IMF team welcomes the prime minister’s resolve to undertake policies necessary to preserve macroeconomic stability and thanks the authorities for the productive conversations.”
“During the expedition, significant progress was made on policy steps to alleviate domestic and external imbalances,” the statement stated.
The statement highlighted key priorities such as strengthening the fiscal position with permanent revenue measures and reducing untargeted subsidies while expanding social protection to assist the most vulnerable and those affected by floods. Allowing the exchange rate to be determined by the market to gradually eliminate the foreign exchange shortage. And enhancing energy provision by preventing further accumulation of circular debt and ensuring the viability of the energy sector.
“Timely and deliberate implementation of these policies, as well as steadfast financial support from official partners, are essential for Pakistan to successfully reestablish macroeconomic stability and promote its sustainable development,” the statement continued.
In the coming days, virtual conversations will be held to finalize the implementation of these policies, the report added.
The foreign exchange reserves of Pakistan decreased to $2.916 billion during the week ending February 3. According to experts, the country’s reserves cover barely 16 or 17 days of imports.
To get $1.2 billion from the IMF and other international lenders, the country must complete the ninth review.
