© Reuters. FILE PHOTO: Men reach out to buy subsidised flour sacks from a truck in Karachi, Pakistan January 10, 2023. REUTERS/Akhtar Soomro/File Photo
By Ariba Shahid
KARACHI (Reuters) – Pakistan and the International Monetary Fund are to resume talks online next week they said on Friday, after ten days of face-to-face discussions in Islamabad on how to keep the country afloat ended without a deal.
With the nuclear-armed nation in the grip of a full-blown economic crisis, the IMF talks are aimed at unlocking at least $1.1 billion of stalled funding as part of a $6.5 billion bailout signed in 2019.
Finance Minister Ishaq Dar told reporters Pakistan had agreed with the IMF on the conditions to release the funds, which have been delayed since last December.
Talks would resume virtually on Monday, he added, citing “routine procedures” for the delay. “We will implement whatever has been agreed upon between our teams,” Dar said.
In a statement, Pakistan IMF Mission Chief Nathan Porter confirmed talks were continuing and that considerable progress had already been made. The hold-up though sent the price of the country’s government bonds tumbling again.
Pakistan is in dire need of a successful outcome. The $350-billion economy is still reeling from devastating floods last year, and the government estimates rebuilding efforts will cost $16 billion.
The heavily-indebted nation only has enough foreign reserves to cover less than three weeks of crucial imports. The longer it takes for the IMF tranche to be paid out, the higher the risk of default, analysts say, especially with elections also looming.
Last week, Prime Minister Shahbaz Sharif called Pakistan’s economic situation “unimaginable.”
“Ideally, Pakistan should have reached a staff level agreement at the end of the IMF mission,” Khaqan Najeeb, a former finance ministry adviser, told Reuters.
“Delay is untenable.”
GRAPHIC: Pakistan’s payment pain (https://www.reuters.com/graphics/PAKISTAN-CRISIS/znvnbzrrlvl/chart.png)
The so-called staff-level agreement, which then needs to be approved by the IMF’s head office in Washington, must be reached before the funds are disbursed.
In addition to the stalled tranche, another $1.4 billion remains of the $6.5 billion bailout programme, which is due to end in June.
Experts said Pakistan needs the payout as soon as possible. “If this drags on for, say, longer than a month, things get more difficult as our forex reserves have reached a critical level,” former central bank Deputy Governor Murtaza Syed told Reuters.
The conditions set by the IMF include a return to a market-based exchange rate and higher fuel prices, measures that Pakistan recently implemented and that have already sent inflation to a record high – 27.5% year on year in January – and created shortages in some imported goods.
Dar said Pakistan had also agreed with the IMF to introduce fiscal measures, including new taxes.
Analysts fear more fiscal tightening could tip the economy further into crisis.
“The government has not only wasted over five months in realising the gravity of the situation, it is still sleepwalking the country into an economic abyss,” said Sakib Sherani, who served as the finance ministry’s principal economic adviser in 2009-10.
Pakistan’s ambition to secure a $1.1 billion loan package from the International Monetary Fund (IMF) has been delayed following talks came to a standstill on Friday, December 6.
The proposed agreement, which is part of the country’s efforts to avert an impending financial crisis, was held up after the latter was unable to convince the IMF officials of the government’s commitment to converting its budget deficits.
The current administration of Pakistani Prime Minister Imran Khan had requested for a three-year Extended Fund Facility (EFF) which will injecting the much needed funds to invigorate the faltering economy.
The IMF, for its part, proposed a series of “conditionalities” which would convert Pakistan into a market-determined exchange rate regime. These “conditionalities”, coupled with the withdrawal of nine energy and power subsidy schemes, would require economic policies in Pakistan to be overhauled.
This has caused some level of reluctance within the government to make the sweeping changes, while IMF negotiator David Lipton pushed forward his and the IMF’s demands. Negotiations are expected to continue in the coming weeks.
For now, Pakistan can rely on its existing $6.7 billion package from the Saudi Arabian government and recently, a one billion dollar support package from friendly neighbor China.
The IMF loan package meanwhile would go a long way in preserving the country’s foreign reserves and avert an impending financial crisis.
Whether the Pakistani government and the IMF can come to an agreement over the terms of the loan, will be critical to the future of the country’s economic stability.