Technical talks between Pakistan and the International Monetary Fund (IMF) team are said to have ended on Monday, with policy talks beginning today as both sides enter a crucial part of discussions to unlock over $1.1 billion for the cash-strapped South Asian economy.
The IMF is concerned about the power sector’s untargeted subsidies, which it wants to target. They went on to say that the IMF’s estimate of the primary deficit was significantly higher than the government’s.
During technical discussions, the power sector and primary balance remained major issues. These will now likely make a significant portion of the crunch talks during policy-level discussions to determine the revenue gap as well as tariff increases.
Pertinently, the IMF has been pushing for the withdrawal of the Rs. 100 billion power subsidy to the export-oriented sector, as well as full recovery of the Rs. 952 billion power sector gap through tariff increases. However, the government has been attempting to explain to the IMF team that settling the entire amount would be incredibly hard.
The IMF has shared its grievances with the government on its decision to provide subsidies to export-oriented sectors and wanted the government to withdraw them. The lender noted that because of little to no fiscal space for additional subsidies, the government has no choice but to bridge the gap through hikes in electricity prices and other contingency measures.
The lender sees the primary deficit for the current fiscal year will be around 0.9 percent of GDP, whereas the government projection was around 0.5 to 0.6 percent of GDP. The Fund has requested the government to submit a proposal on higher tariffs, which may be announced after policy-level discussions conclude in the coming days.
The second phase of policy-level talks on the Memorandum of Economic and Financial Policies (MEFP) is scheduled to last until February 9. The discussions are focusing on expenditure and revenue performance details in order to identify the policy measures — both revenue and non-revenue — that must be implemented in the remainder of the current fiscal year.