ISLAMABAD: Pakistan’s talks with the International Monetary Fund (IMF) on a bailout package remained inconclusive on Friday, dashing expectations that the government was ready to sign on the dotted line. In a late-night message, the finance ministry said only that “we have made good progress in our discussions with the visiting IMF mission. Consultations will continue over the weekend.”

The talks were originally planned for conclusion on Friday and the IMF mission had confirmed return flights to Washington DC late in the night. Those travel plans have presumably been modified.

Both the government team and the IMF staff mission remained evasive and unavailable to the waiting media persons on a day of hectic consultations as they were seen repeatedly coming in and out of the Q-Block, the seat of the ministry of finance and IMF’s resident mission.

An informed source said a steep monetary adjustment and fiscal realignments were the key sticking points holding back a final outcome and the IMF had not changed its stance since October last year.

Official spokesman Dr Najeeb Khaqan avoided all contact with reporters throughout Friday and did not take calls. Finance Secretary Muhammad Younas Dagha told journalists that the adviser (to the PM on finance) office was the right forum to comment on the IMF talks.

Final deal remains elusive despite marathon talks all day

A senior source said PM’s adviser on finance Dr Abdul Hafeez Shaikh was trying his best to reach a consensus before markets reopen on Monday while avoiding haste in setting performance targets that may not last beyond a couple of quarterly reviews. “These are really serious matters and need serious approach,” the source said.

There were also some reports that the visiting mission was taken to the PM office for an interaction with PM Imran Khan but finance ministry officials denied this. They said Dr Hafeez Shaikh and other officials met the prime minister but the IMF team did not accompany them.

IMF resident representative in Islamabad Teresa Daban Sanshez when reached late night to ask if talks had been concluded and with what outcome said “there is not planned any interaction with media during the IMF discussions (sic)”. “No comment” was her repeated response while she moved past reporters in her numerous forays into and out of Q block, the building where the meetings went on all day. She did not respond if the mission was extending visit.

Informed sources said the IMF mission had taken an “unusually aggressive posture” this time not seen since late 1990s and wanted Pakistan to commit to an upfront adjustment plan along with ‘deep-rooted’ and wide-ranging structural reforms to secure the bailout.

This adjustment, according to the IMF, should be supported by major increases in electricity and gas rates and quick recovery plan for bleeding public-sector entities and explanations to some ‘untouchable expenditures’. The combined adjustment over the next two years is estimated about 3.5pc of GDP including through energy sector circular debt capping plan.

The government is under pressure to include the full cost of imported LNG into the weighted average cost of natural gas and over Rs201bn recovery from power consumers immediately in addition to gas and electricity rates raised a couple of months ago by up to 30pc and 15pc, respectively.

The IMF wants the next year’s tax revenues to expand significantly to close to Rs5.3tr from the target of about Rs4.4tr this year. Strengthening the central bank’s autonomy in line with the international best practices, a market-based floating exchange rate and reduction in the debt ratio are some of the key areas of the framework that would become an integral part of the next year’s budget.

Already facing criticism over rising inflation amid higher energy prices, the government’s major concern was the political and economic costs of the painful programme. It can hardly afford to have public protests like those in some European countries. Therefore, it wanted to delay any further increase in electricity, gas and petroleum rates to ensure reasonable gaps.

The sources said the protracted engagements since September-October last year also showed an unusually difficult programme because of not-so-friendly geo-political situation as evident from a parallel challenge from Financial Action Task Force. A Pakistani team that may include Dr Hafeez Shaikh and Secretary Dagha to engage with FATF is expected to depart later next week.

Published in Dawn, May 11th, 2019