The government is struggling to secure a billion-dollar bailout from the International Monetary Fund (IMF) as the lender seeks timely action on 4 crucial conditions for reaching a staff-level agreement by next week
Reportedly the government is baffled by the prevalent difference of opinion on both sides. A staff-level agreement (SLA) with the IMF is unlikely this week because the two sides continue to disagree on major issues such as the exchange rate, interest rate, external financing gap, and Rs. 3.82 per unit debt servicing surcharge on electricity.
The Pakistani officials have referred to the new demands as “deliberate efforts” to put pressure on the country’s failing economy, similar to the situation in 1998 when Pakistan had conducted nuclear tests.
Despite the mood, the government hopes to resolve the issues and achieve SLA by next week. It has also asked the US government to help conclude the deal.
While talks for a deal today remain stranded on similar grounds, the impasse is inflicting serious damage to the country with Moody’s lowering Pakistan’s credit rating further into junk.
The IMF estimates a financing gap of about $7 billion for the current fiscal year, compared to Pakistan’s projection of $5 billion. Meanwhile, a finance ministry official has predicted that the State Bank of Pakistan’s foreign exchange reserves would exceed $10 billion by the end of June, up from just over $3.1 billion today.
Electricity Surchage ‘Unreasonable’
Among the top few IMF agenda items mentioned above, one of them is the continuation of surcharge on electricity consumers. One official called this last condition ‘unreasonable’. There are also concerns over a deadline for exporters to bring their proceeds to the country immediately or face conversion at old exchange rates.
Others pointed out the government had left the exchange rate at the mercy of market forces, and as a result, the rupee-dollar value had drastically changed. “The IMF sees the exchange rate close to the grey market rate,” the sources said, adding that “this is not true”.
The IMF has rejected the government’s position on calculating the real positive interest rate by comparing it to core inflation and has asked Pakistan to compare the real positive interest rate to the headline inflation rate. The IMF has also moved the monetary policy committee meeting date forward by two weeks in order to secure a large interest rate hike ahead of a possible SLA.
Some reports have implied that the IMF’s attitude towards Pakistan was unreasonable, and it pushed the authorities to take all measures prior to the staff-level agreement, which is normally done before the Executive Board meeting.
Finance Minister Ishaq Dar has already raised the issue with the US government for tipping the odds in its favor. In any case, there is more doubt about an agreement happening now than it was before the technical-level talks last month.