ISLAMABAD: Amid time running out, the International Monetary Fund (IMF) is still analysing Pakistan’s fiscal position particularly the flood-related expenditures that it viewed had changed the macroeconomic assumptions of the fund programme.

The “IMF understands that the floods have changed the macroeconomic assumptions on which the programme was designed; therefore detailed analysis is being conducted by their team using the data provided”, the Ministry of Finance said in response to a media query on delay in 9th review.

The two sides had been virtually engaged for more than a month now in attempts to conclude the 9th review this month so that the next tranche of about $1.18 billion could be approved by the IMF’s executive board and disbursed before Xmas and new year holidays. The policy level discussions are yet to be finalised although the finance ministry said the “IMF team is expected to visit Islamabad soon for completion of the 9th review”.

Under the normal mechanism, the fund staff mission has to reach an agreement with authorities on programme implementation and then required at least a fortnight for the board members to hold a meeting based on staff agreement. A further delay would mean the unavailability of the IMF executive board until the first week of January.

Finance ministry says IMF verifying flood expenditure before allowing concessions under 9th review

Pakistan’s foreign exchange reserves in the meanwhile are critically low and the central bank authorities have been rationing dollar releases even for essential imports like crude and petroleum products.

Finance Minister Ishaq Dar and the State Bank of Pakistan have already announced to repay $1bn Sukuk (Islamic bonds) later this week, ahead of Dec 5 maturity. As of Nov 18, reserves held by the central bank stood at $7.8bn. The oil companies and Petroleum division have been complaining about the shortage of foreign exchange and warning about supply disruptions.

The authorities shared last week a revised fiscal framework with the fund showing close to Rs1tr in fiscal slippages during the current fiscal year including over Rs900bn worth of higher than budgeted interest payments besides revenue shortcomings going forward.

While Pakistan would be seeking a few waivers on slippages from the fund programme because of floods, the fund staff had been examining the government’s position on flood-related expenditure on budget and related financing flows from multilateral and bilateral lenders and donors. Fund sources also suggest that two sides were remotely engaged “over policies to reprioritize and better target support toward humanitarian and rehabilitation needs, while also accelerating reform efforts to preserve macroeconomic and fiscal sustainability, including with continuing financial support from multilateral and bilateral partners”.

The policy level talks were originally due in the last week of October, rescheduled to Nov 3 and then kept on delaying following gaps in estimates by two sides. The authorities had been struggling to schedule formal talks on the overdue 9th review of the $7bn Extended Fund Facility amid a lack of clarity on flood-related financial requirements for the current fiscal year and declining revenue stream following import control as expenditures already go south.

Last week, the finance ministry said that the two sides had agreed that expenditure estimates for flood-related humanitarian assistance during the current year will be firmed up along with estimates of priority rehabilitation expenditure and claimed that the IMF indicated its willingness to sympathetically view the targeted assistance for poor and vulnerable, especially the flood hit.

Published in Dawn, November 29th, 2022