ISLAMABAD: With primary focus on containing fiscal deficit, Pakistan and the International Monetary Fund (IMF) on Monday began policy discussions on economic and fiscal adjustments required to ensure a fresh fund programme worth around $6 billion.

A senior government official said a draft Memorandum of Economic and Financial Policies (MEFP) had been prepared by the Ministry of Finance in consultation with other economic ministries that was now the centre of discussion with the IMF.

“The focus is on deficit reduction to a level acceptable to the IMF because economic stabilisation is going to be the ultimate objective” for which the two sides are reviewing revenue measures and expenditure controls, he said, adding the IMF also asked questions about the external payment plans.

Policy level talks on tentative $6bn bailout plan kick off

The fund is reported to have raised questions over more than Rs90bn revenue shortfall in the first four months of the current fiscal year and wondered how the projected fiscal deficit target of 5.1pc could be achieved when development programme had already been curtailed to a bare minimum.

They also asked questions about the revenue measures under consideration as to make up for the loss suffered so far and what was the policy plan going forward. The mission was told that FBR was issuing notices to high net worth individuals on the basis of available data of those living in posh areas, living luxury lives and air travels etc.

The IMF is also dissatisfied over the performance of the power sector whose losses and recoveries are reported to have gone down rather than improving since the last IMF programme was completed in Sept 2016, leading to build up of circular debt beyond Rs1.2 trillion and creating supply side constraints.

The authorities have reported increased gas and power tariff to reduce energy sector losses and planned campaign for recovery of outstanding bills and reduction in theft but the fund mission believed the challenge could not be overcome without deep rooted structural reforms.

Informed sources said the authorities briefed the fund mission about the subsidies envisaged in the 2018-19 budget and those committed by the PTI government since it came to power three months ago and explained that all fresh subsidies were targeted and based on its vision to support export sector and protect the marginal groups.

Finance Minister Asad Umar was tentatively scheduled to join the policy level discussions on Tuesday that would continue until the end of this week (until Thursday, November 15) in which the fund would separately meet the ministers and secretaries of the ministries of commerce, power, petroleum, privatisation, chairman FBR and the governor of the State Bank of Pakistan.

The two sides would break the dialogue for the weekend to prepare their respective positions and view point on the bailout package. This would be followed by two-day crucial negotiations on finalising terms and conditions of the new programme, including size, tenure and disbursement mechanism on Nov 19 and 20.

He said the two sides had been engaged in data sharing since the IMF staff mission reached Islamabad last week and separately met all the relevant authorities.

On Monday, the IMF team led by mission chief Herald Finger had discussions with chairman FBR, governor SBP and senior officials of ministry of finance, commerce and discussed reform agenda.

The officials declined to officially discuss the progress on IMF talks with the media saying a full disclosure of the agreed agenda would be made on the conclusion of talks early next week.

They said the two sides were in the initial stage of discussions on macroeconomic framework adjustment as articulated repeatedly by the finance minister over the past few weeks. “What changes the IMF wants in this framework would become tentatively clear by end of this week”, he said.

Published in Dawn, November 13th, 2018