Pakistan’s interim government, IMF agree on backup steps in review talks

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| Photo Credit: Reuters

Pakistan’s caretaker government and the International Monetary Fund (IMF) have reached a consensus on backup measures to be activated by the year’s end if significant deviations from fiscal- and monetary objectives threaten the broader aims of the ongoing $3 billion bailout to the cash-strapped nation, according to a media report on November 10.

Informed sources told the Dawn newspaper that a visiting mission of the IMF and the Pakistani authorities would be concluding technical-level discussions on November 10.

“It will involve an exchange of the latest data, not only limited to the end-September quarterly performance, and queries and clarifications on all macroeconomic areas and their forward-looking outcomes,” the report said.

“While formal policy-level talks are expected to begin on Monday, both sides agree on the future course of action, including expanding the scope of taxation on the retail sector and improving the targeting of real estate-based revenue collection in case of any shortfall,” the report said.

The report said they agreed on backup measures to activate by the year’s end if significant deviations from fiscal and monetary objectives threaten the loan programme.

A fixed taxation scheme for retailers could be the first shot in the arm in case of a minor revenue gap, to be followed by real estate, through an ordinance with effect from January 1. Further clarity and specifics will emerge in policy discussions next week.

The sources said revenue targets aimed through import growth were the key concern for the IMF mission, as imports so far remain subdued than anticipated at the time of budget 2023-24 and the loan deal’s finalisation in July.

In any case, both retail and real estate sectors would be required to significantly increase their contribution to the revenue stream from their existing share with effect from July 1, 2024.

The sources said the two sides had no big issue on the need for curtailing development spending during the current year both at the federal and provincial levels, but effective taxation on agriculture income remains out of the caretaker government’s agenda given constitutional limitations. However, the IMF mission has not given up flagging its importance.

In August, the government shared with the IMF a revised plan for managing the power sector circular debt, besides rebasing annual tariffs and streamlining monthly and quarterly fuel adjustments, including that of the private power utility K-Electric. This meant no fresh flow to the circular debt, which had exceeded ₹2.5 trillion by the end of September.

“Luckily, no major issue has emerged so far for the power sector this time,” an official said, hoping that policy-level talks with the IMF would remain smooth.

However, the government may have to make proper allocations to solarise tube wells in next year’s budget to further cut down on subsidies.

The policy-level talks next week would also suggest if the IMF had any problem with external financing needs that Pakistani authorities plan to meet through significantly higher foreign direct investment (FDI).

The government aims to attract this investment from friendly nations — particularly in mines and minerals, agriculture, aviation and energy sectors -— through the newly created civil-military forum, the Special Investment Facilitation Council (SIFC), according to the report.