International Monetary Fund (IMF) to Pakistan .. Updates

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The Executive Board of the International Monetary Fund (IMF) will convene today in Washington to approve a critical $7 billion loan package for Pakistan, aiming to stabilize the country's fragile economy.

This new bailout program, spanning 37 months, marks Pakistan's 24th IMF assistance package.

With its approval, Pakistan will also be eligible to receive funds from other international organizations and countries.

As per sources, Pakistan is likely to get $1 billion or $1.1 billion as the first instalment of the loan by September 30.

After the approval of the loan program, the second installment will also be received in the same financial year, the sources added.

 

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Pakistan seeks $1b from IMF to tackle external economic challenges​

IMF has already approved $7b bailout, but has further funding available via its Resilience and Sustainability Trust

Reuters
October 24, 2024

Finance Minister Muhammad Aurangzeb speaks during an interview with Reuters at his office in Islamabad on July 19, 2024.

Pakistan is targeting around $1 billion in a formal request for funding from the International Monetary Fund (IMF) facility that helps low and middle income countries manage external shocks, Finance Minister Muhammad Aurangzeb told Reuters.

“We have formally requested to be considered for this facility,” Aurangzeb said in an interview on the sidelines of the IMF/World Bank autumn meetings in Washington.

The IMF had already agreed a $7 billion bailout for Pakistan, but has further funding available via its Resilience and Sustainability Trust (RST).

The RST, created in 2022, provides long-term concessional cash for climate related spending, such as adaptation and transitioning to cleaner energy.

The South Asian nation is one of the most vulnerable countries to climate change according to the Global Climate Risk Index.

Floods in 2022, which scientists said was aggravated by global warming, affected at least 33 million people and killed more than 1,700. The country’s economic struggles and high debt burden impinged its ability to respond to the disaster.

Pakistan is also in talks with the Asian Infrastructure Investment Bank for a credit enhancement for a planned Panda bond, with an initial issue of $200 250 million, Aurangzeb said.

A Panda bond issuance would be Pakistan’s first foray into China’s capital markets. Aurangzeb said they were talking to “a few other institutions” in addition to the AIIB for a credit enhancement.

Issuing in the world’s “second largest and the second deepest” capital market, Aurangzeb said, was the key aim, rather than a particular issuance size.

“From our perspective it is diversification of the funding base,” Aurangzeb. “Even if the inaugural issue is not significant in size, for us it is important that we print that and of course then we can keep it on tap.”

 

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Projected growth rate by IMF​

October 24, 2024

EDITORIAL: The International Monetary Fund (IMF) has projected a growth rate for Pakistan of 3.2 percent identical to Fitch rating agency’s projection in July 2024 (budgeted at 3.6 percent with recent government projections downgrading it to 3 to 3.5 percent) and inflation at 9.5 percent (against the budgeted target of 12 percent) for the current year.

The growth rate was projected on the back of higher farm output (3.6 percent growth against over 6 percent last year) with the Finance Division in its monthly updates focusing on two elements as indicative of target achievement: (i) imports of agricultural machinery and implements increased by over 100 percent this fiscal year against last year that it was argued would help raise yield, and (ii) agriculture credit disbursement rose by over 24 percent. Understated were two factors that may herald the target not being achieved; notably, a decline in urea off-take by 13.6 percent and DAP by 21.9 percent while cotton output, a major crop with positive fallout on textile value-added exports, registered a decline from the target.

The industrial sector continues to operate under extremely difficult economic conditions that include a constant increase in electricity and fuel charges, as per the agreed IMF conditions, and the discount rate, though reduced in recent months, is a high of 17.5 percent which accounts for a sustained decline in the demand for credit by large-scale manufacturing (LSM) sector.

However, sales have picked up but these sales are largely attributable to inventories and not to a higher output than before, even though the LSM growth is now in the positive territory against last year’s negative base – 2.4 percent against negative 5.4 percent in July.

The main driver of growth remains the government expenditure which remains elevated with current expenditure budgeted to rise by 21 percent in 2024-25 as opposed to last year though with this is on the back of domestic and foreign borrowing.

In terms of revenue sources the government budgeted to continue to burden existing taxpayers this year, which is pushing many lower- to middle-income earners to the ranks of the poor and vulnerable who currently are assessed at 41 percent of the population; and appears to be struggling to reach an agreement with the traders as its most proactive drive to widen the tax net in spite of the fact that the actual revenue target from this source is a mere 50 billion rupees for the current fiscal year.

In addition, the Public Sector Development Programme, a pro-growth expenditure item with the in-built propensity to raise employment opportunities, is being severely curtailed as in previous years to enable the government to meet the budget deficit target agreed with the Fund.

Fitch projected inflation will be at 6.2 percent by December this year, the Monetary Policy Committee in its statement dated 13 September 2024 presented the reasons behind this decline as “the impact of contained demand, reinforced by improved supplies of major food items, favourable global commodity prices and delay in upward adjustments in administered energy prices”, and added that “consumers’ inflation expectations increased further in the latest survey”, which appear legitimate as “there is uncertainty stemming from the timing and magnitude of adjustments in administered energy prices, future course of global commodity prices, and any additional taxation measures to meet the shortfall in revenue collection.”

Inflation data is subject to considerable scepticism as it is routinely understated by including prices set by the government in Utility Stores, where many of the essential subsidised items are not available or of a quality that is in demand, there is no rationalisation in some subsectors; for example, a decline in cement prices is not synchronised with construction costs, and last but not least, the ever-rising borrowing of the government for current expenditure, a highly inflationary policy, is never taken into account.

The GDP growth and declining inflation are not a source of the general public’s feel-good factor and this should be a source of serious concern to the economic team leaders who have agreed to conditions set by the IMF to be able to access borrowing from friendly countries.

It is feared that a further rise in energy prices or the implementation of contingency tax measures agreed with the IMF in the event of a shortfall (and a shortfall has been announced for the first quarter) may bring public discontent to the surface with serious politico-economic outcome. It is hoped that the government is cognizant of this simmering public discontent that may not be contained through a crackdown or indeed a lockdown.

Copyright Business Recorder, 2024

 

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IMF demands additional revenue measures after Pakistan misses tax targets​

The IMF also declined Pakistan's request to revise down the FBR's tax collection targets

Irshad Ansari
November 02, 2024

Anadolu Agency

The International Monetary Fund (IMF) has asked Pakistan to implement extra revenue measures following the Federal Board of Revenue's (FBR) revenue shortfall in the first four months of the fiscal year.

The IMF also declined Pakistan's request to revise down the FBR's tax collection targets.

According to FBR sources cited by Express News, the IMF urged Pakistan to make up for the tax shortfall with additional revenue-raising steps.

During virtual discussions with the IMF, the FBR had sought a downward revision of its tax targets, but the request was denied, sources said.

The FBR’s tax shortfall may impact the disbursement of the second loan tranche, and further measures could be needed if the shortfall grows in the coming months, sources added.

 

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Pakistan’s bilateral partners to continue rollovers during IMF programme: SBP governor​

Reuters
November 4, 2024

Photo: Reuters

ISLAMABAD: The State Bank of Pakistan (SBP) Governor Jameel Ahmad told analysts on Monday that bilateral partner countries have assured the International Monetary Fund (IMF) they will continue rollovers of their debt for the duration of Islamabad’s bailout programme.

He passed these remarks in a briefing held after the Monetary Policy Committee (MPC) of the SBP announced to reduce the key interest rate by 250 basis points (bps).

In its fourth successive round of monetary easing that began in June 2024, the central bank slashed the policy rate to 15% from previously 17.5%.

 

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IMF team to check progress on EFF shortly​

• IMF staff to visit Pakistan on November 11

Tahir Amin
November 7, 2024

ISLAMABAD: The International Monetary Fund (IMF) staff, led by Nathan Porter, will travel to Pakistan between November 11-15 for a staff visit to discuss recent developments and Extended Fund Facility (EFF) programme performance to date.

Top officials revealed that this mission is not part of the first review under the $7 billion EFF, which will be no earlier than the first quarter of 2025.

Sources said during the visit, the IMF staff would hold meeting with the finance minister, chairman Federal Board of Revenue (FBR), State Bank of Pakistan (SBP) and other concerned ministries including energy.

The FBR has collected Rs877 billion during October 2024 against assigned target of Rs980 billion, reflecting a shortfall of Rs103 billion. The FBR has collected Rs3,440 billion during first four months of 2024-25 against the assigned target of Rs3,636 billion set for July-October of current fiscal year, reflecting a shortfall of Rs196 billion.

The IMF staff is expected to discuss the revenue shortfall and may ask the government for more measures to bridge the revenue gap. The government closed first quarter of current fiscal year 2024-25 with overall budget balance of Rs1.696 trillion equivalent to 1.4 percent of Gross Domestic Product (GDP).

Further, the government achieved a primary balance of Rs3.002 trillion, equivalent to 2.4 percent of GDP.

Copyright Business Recorder, 2024

 

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IMF’s Pakistan mission chief meets finance minister Aurangzeb to discuss $7bn loan performance​

Tahir Sherani | Reuters
November 12, 2024

The International Monetary Fund’s mission meets with Finance Minister Mohammad Aurangzeb on November 12. — via author

The International Monetary Fund’s (IMF) Pakistan mission chief Nathan Porter met with Finance Minister Mohammad Aurangzeb in Islamabad on Tuesday to discuss the $7 billion loan performance, a statement from the Finance Ministry said.

The meeting comes a day after the opening of an unplanned official visit of the IMF to the country, led by Porter. The unscheduled visit of the IMF mission chief comes four months ahead of the first review under the new $7 billion Extended Fund Facility (EFF) granted to Pakistan by the global lender in September.

The visit is “unusual” and comes months ahead of the first EFF review which is due in the first quarter of 2025, according to Reuters.

The ministry and the IMF have not officially released details of the visit.

On Monday, Pakistan authorities stuck to budgeted revenue targets and promised to overcome first-quarter shortfalls through enforcement and administrative measures.

Informed sources told Dawn that the visiting fund staff initiated discussions on the revenue situation with the Pakistani team.

The mission will stay here until Nov 15 “to discuss recent developments and programme performance to date”, according to informed sources. “This mission is not part of the first review under the extended fund facility (EFF), which will be no earlier than the first quarter of 2025,” they said.

Under the programme modalities, the IMF and Pakistan authorities are required to hold biannual review meetings. As such, the first formal review has to take place on the basis of end-December 2024 performance for Pakistan to qualify for disbursement of a second instalment of over $1bn by March 15, 2025. The $7bn programme is divided into six biannual reviews for equal tranches of $1bn each.

The sources said the Pakistani side updated the visiting mission about Rs190bn revenue shortfall in the first four months, almost half of which accrued in October alone. This had raised alarms in the lenders’ quarters that revenue shortfall was gradually increasing with the declining rate of inflation.

An unplanned mission was thus rolled out to take stock of the situation, not only at the revenue front but also on the privatisation programme that met with a setback at the botched sale of Pakistan International Airlines, raising a question mark over the prequalification of bidders and privatisation strategy on a whole.

The sources said the FBR team assured the mission that its enforcement and administrative measures were just taking off and its efforts were gaining momentum to show initial results by the end of the current month and narrow down early revenue losses.

The shortfall, they added, was within the 1pc quarterly rolling target. They said the FBR may wish to plead a “downward revision in revenue target instead of a mini-budget” as the talks progress but had not even given a hint in the first round.

Over the coming days, the two sides will be deliberating on key programme benchmarks, particularly relating to federal revenues, SOEs, external financing gap and provincial fiscal direction and revenue measures, to ensure that any slippages on performance criteria are corrected ahead of scheduled biannual revenue.

This is for the fact that not only Pakistan’s past programme performances but IMF’s own credibility remains at stake.

 

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IMF mission in town​

EDITORIAL:
The schedule of reviews shared in the staff-level agreement report uploaded on the International Monetary Fund website last month noted 25 September as the approval date of the 37-month 7 billion dollar Extended Fund Facility (EFF) arrangement with disbursement of 760 million dollars and the first quarterly review was scheduled for 15 March 2025 which, if successful, would lead to the disbursement of another 760 million dollars.

It is therefore little wonder that there is intense speculation within the country as to which of the key agreed time-bound quantitative conditions/benchmarks were unmet compelling the advent of the IMF’s mission to Pakistan with the objective of either setting new time-bound conditions and/or implementation of agreed contingency measures.

An exclusive report in Business Recorder indicates that the mission has met with the Federal Board of Revenue (FBR) with a projected shortfall of 230 billion rupees by the end of December this year.

The Tajir Dost Scheme has certainly not yet been launched due to traders organised resistance (which should have been expected based on past precedence), with reports suggesting that talks have concluded successfully with FBR officials acquiescing to all the traders’ proposals; yet while some senior officials of the FBR now claim that the budgeted amount under this head was only 50 billion rupees yet at the launch of this programme in March 2024 — launched on the media amidst much fanfare, but never implemented — the projected revenue was around 400 to 500 billion rupees.

Therefore, while the exact revenue shortfall from the target from this scheme is not known due to widely disparate estimates between the first launch to today, yet the total revenue shortfall of 230 billion rupees is significant enough for the Mission’s arrival in Pakistan.

One obvious way out of this shortfall, which would be fair as well is for the government to defer the 20 to 25 percent budgeted pay rise for its employees who constitute 7 percent of the total labour force and whose salaries are paid for at the taxpayers’ expense while the remaining 93 percent of the country’s labour force is struggling not only with minimal if any wage increase for the past four to five years but also grappling with the massive rise in inflation during these years.

The government instead has, like its predecessors, unfortunately opted for cutting down on development outlay budgeted for the year, a prime mover of Gross Domestic Product (GDP) growth, given that private sector output remains dampened notwithstanding claims to the contrary by SBP surveys.

The budgeted 3.5 percent growth has already been downgraded to 3 percent by donor agencies and the Monetary Policy Committee (MPC) in its 4 November ruling downgraded it to between 2.5 to 3.5 percent with domestic economists pointing out that citing 3.5 percent as within achievable limits may be due to pressure, tacit or otherwise, as opposed to any deeply held perception that it will be attained.

Be that as it may, lower growth implies lower tax collections and in this context it is relevant to note that the discount rate remains much too high even at the recently reduced 15 percent for the private sector and, as succinctly stated in the IMF report, “the balance sheets of the three parties, the sovereign (government), commercial banks, and the central bank have become highly interconnected.

This complex tripartite relationship means that developments or actions in one domain (e.g., fiscal, monetary policy and the banking sector) can have wide-ranging effects across the economy.” In addition, ever-rising administered prices as per the Fund conditions, notably of electricity and petroleum products, are further raising input costs and acting as a deterrent to private sector output.

Business Recorder has been consistently maintaining that there is not only a need to be realistic in agreeing to tax targets with the Fund, a trend that accounts for the Fund now specifying contingency tax measures in the event of a failure to meet the agreed target, but also that any increase in the government’s leverage to phase out harsh politically challenging conditions (administered prices and the prevalence of indirect taxes whose incidence on the poor is greater than on the rich to name just two) require voluntary sacrifice by all the elite recipients of current expenditure at least in the current fiscal year.

Copyright Business Recorder, 2024