Pakistan facing ‘exceptionally high’ risks, says IMF

ISLAMABAD: Pakistan needs another International Monetary Fund (IMF) programme and support from other multilateral lenders beyond the coming election cycle and the ongoing standby arrangement, the lender said in a report released on Tuesday.

“Resolving Pakistan’s structural challenges, including long-term BOP [balance of payments] pressures, will require continued adjustment and creditor support beyond the current programme period,” the Fund said in a 120-page report analysing Pakistan’s macroeconomic outlook.

The report is based on the Memorandum of Economic and Fiscal Policies (MEFP) signed by Finance Minister Ishaq Dar and State Bank Governor Jameel Ahmed.

“A possible successor arrangement could help anchor the policy adjustment needed to restore Pakistan’s medium-term viability and capacity to repay,” it said.

The IMF assessment noted that Pakistan’s economic challenges were complex and multifaceted, and risks were exceptionally high. “Addressing them requires steadfast implementation of agreed policies, as well as continued financial support from external partners. Consistent and decisive implementation of programme agreements will be essential to reduce risks and maintain macroeconomic stability,” it said.

Lender insists addressing structural challenges will require sustained support, another IMF programme

On its part, according to the report, the government has given an international undertaking for immediately notifying about a Rs5 per unit increase in electricity rates and over 40pc increase in gas rates, as the gas sector circular debt is now competing with power sector losses.

It has committed to address drivers of circular debt flow in the power sector by notifying recent tariff increases determined by Nepra with effect from July 1, and notification of quarterly and monthly tariff adjustments without delays stand ready to take quick additional measures in case set revenue targets are missed.

The government has also promised renegotiation of power-purchase agreements with remaining power producers (including Chinese) or prolonging their debt servicing tenors.

In the gas sector, the government has committed to immediate notification of gas tariff adjustments determined by Ogra, besides merging the gas rates for both local and imported natural gas through a weighted average tariff.

The government has also given an undertaking to ringfence fiscal programme as envisaged in the recent budget and other commitments with the IMF.

For this, the government will not allow supplementary grants for any additional unbudgeted spending over the parliamentary approved level in the current fiscal year, at least until the formation of a new government after the elections (except in case of a severe natural disaster).

The government has also given a “commitment not to launch any new tax amnesties or grant further any new tax exemptions in 2023-24 including through the budget or statutory regulatory orders without prior [assembly] approval”.

The government has also provided agreements with each province on their commitment to achieving an end-FY24 fiscal position consistent with the fiscal year’s general government primary balance goal of Rs401bn and continuing focus on critically urgent energy sector policies, including not to introduce any fuel subsidy, or cross-subsidy scheme, in FY23 and beyond.

In addition, the government has committed to ensuring monetary and financial stability by returning to a market-determined exchange rate, lowering inflation toward the target, and rebuilding foreign exchange reserves.

It said the authorities would refrain from providing guidance or expressing a preference to market participants regarding the exchange rate or regulating demand for forex through (either formal or informal) administrative action.

Once proper market functioning is restored, the authorities have committed to maintaining the average premium between the interbank and open market rates at no more than 1.25pc and no less than minus 1.25pc during any consecutive five business day-period and publish daily interbank and open market exchange rates.

Published in Dawn, July 19th, 2023