[vc_row][vc_column][vc_column_text dp_text_size=”size-4″]ISLAMABAD: Pakistan will engage in one of the toughest negotiations with the International Monetary Fund (IMF) to revive the $6.5 billion rescue package today (Tuesday), already wounded by the unfulfilled commitments made by foreign countries offering cash deposits totaling $5 billion.
A government official stated on Monday that the government’s efforts during the 10-day negotiations will be concentrated on persuading the IMF to accept a revised plan that tries to implement the outstanding harsher criteria over a longer period of time.
The world lender will demand prompt implementation of all action items, regardless of the expense to the country that is already struggling under the weight of a 25% inflation rate. The lender is incensed by the callous behaviour of the succeeding governments.
We hope that by the end of the IMF team’s visit, all unresolved concerns will be resolved because Pakistan is in a challenging economic condition, said Dr. Aisha Pasha, the Minister of State for Finance, who will preside over the technical round of negotiations, which will begin today (Tuesday).
In a visit that is essential for Pakistan to prevent default, IMF Mission Chief Nathan Porter has already arrived in Islamabad. However, if all of the requirements are met, there is a chance that the coalition government’s residual political capital will be eroded – assuming the IMF does not change its position.
The IMF has not yet responded to the revised roadmap offered by Pakistan, according to sources in the finance ministry, demonstrating that initial attempts have not been very successful. They said that the Ministry of Finance will make every effort to persuade the IMF that all of the outstanding tasks cannot be carried out simultaneously.
While the common man would be somewhat shielded, current events indicate that all social groups may have to face the penalty this time, proportionate to their income level, according to a senior finance ministry official who gave a background briefing.
The IMF is requesting a number of actions in exchange for the reinstatement of the programme and the release of the next loan tranche of $1.1 billion. These actions include a market-based exchange rate, the removal of import restrictions, long-lasting taxation measures, and, most importantly, addressing the backlog in the power sector by raising tariffs.
According to the senior official, “Our goal will be that the fiscal gap that has emerged against the primary budget deficit target agreed upon in June last year will be covered by a combination of tax increase, expenditure rationalisation, and tariff adjustment.”
To comply with the IMF’s most pressing demand, the government took an unprecedented step by allowing the rupee to weaken by a record 17%, or Rs39, per US dollar in just three days. However, there will be more in the coming weeks, so this is not the end. Although the cost of gasoline and high-speed diesel has increased by 35 rupees per litre, sales tax has not yet been added. An official suggested raising the petroleum levy (PL) on gasoline to as much as Rs80 to Rs100 per litre as an alternative to the GST.
Pakistan had hoped that Saudi Arabia, China, and the United Arab Emirates (UAE) would have collectively given the nation $5 billion in cash deposits by this point to help improve its negotiating position. But since none of these assurances have come true, Pakistan is now forced to accept the IMF’s conditions.
Barely $3.1 billion worth of foreign reserves are left in the country, which is only enough to fund imports for two weeks. The IMF is requesting more than Rs600 billion in measures in place of the FBR’s proposal to impose new taxes of Rs170 billion.
The power sector is the biggest issue, followed by the exchange rate. Only three of the power sector’s 11 structural benchmarks and indicative targets have been put into practise because the others ask for politically unpalatable choices.
An indicative goal called for the government to pay off the arrears in the power sector by the end of December while maintaining a negative flow. However, excluding the effects of some of the other judgements, Rs257 billion had already been added between July and November.
The government now needs to find fiscal room for additional subsidies worth Rs123 billion for exporters as well as space for subsidies worth Rs28 billion given for agricultural tube wells. This is due to deferred fuel cost adjustments (FCAs), which require the government to recover Rs65 billion from consumers.
Either power rates must be raised to offset these excessive subsidies, which total Rs216 billion, or taxes must be raised to cover the subsidies. This is in addition to the price rise that was necessary due to lower subsidies, lower electricity bill recoveries, and higher than permitted line losses.
The administration must also negotiate with the AJK government to recover the cost of water usage and sign a Power Purchase Agreement (PPA) with K-Electric (KE) to address the issue of subsidies. A complete subsidy rationalisation scheme for farm tube wells, which is also a requirement of the IMF and World Bank loan terms, has not yet been finalised by the government.
Creating the financial room necessary to discharge the Rs283.2 billion in parked debt for the electricity industry held by a government holding company will be another difficulty for the administration.
The IMF mission will also concentrate on “restoring the viability of the power sector and reversing the continuous buildup of circular debt,” according to Esther Perez, the country representative for the IMF.
The administration has also broken the IMF’s requirement that the forward swaps cap be lowered to $4 billion by the end of December. The government will need a waiver from the IMF board to exceed the present cap, which is roughly $5.2 billion. The restriction on the net international reserves to a minus $10.3 billion by the end of December also appears to be broken by the administration.
In a similar manner, a different IMF judgement that calls for the additional circular debt from the power sector to be included in the budget deficit calculation may cause the government to violate the requirement of meeting an overall primary budget deficit target of Rs924 billion.
During the first half of the fiscal year, the overall budget deficit was Rs1.984 trillion, and the cost of debt servicing was Rs2.570 trillion. However, there was disagreement about whether or not to depart from the agreed-upon cyclical debt management plan, another matter for which the government can ask for a waiver.
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