Pakistan requested urgent assistance from the United States to clinch an agreement with the International Monetary Fund (IMF).
Rarely does the coalition government have to cope with a situation in which the foreign lender continually shifts the goalposts despite making difficult, politically costly decisions.
At a virtual meeting, Ishaq Dar, the finance minister, reportedly asked Wally Adeyemo, the deputy secretary of the US Treasury, for assistance.
According to the reports, the United States contacted the office to discuss another matter; nonetheless, Dar brought up the IMF’s position toward Pakistan.
According to sources in the finance ministry, the staff-level agreement with the IMF is unlikely to be reached this week as the two parties continue to disagree on crucial issues such as the exchange rate, the interest rate, the external financing gap, and the Rs3.82 per unit debt servicing surcharge on electricity. However, despite everything, they still intend to settle the issues and finalize an agreement the next week.
For the first time in the preceding 25 years, the government was confronted with the uncommon circumstance of the IMF having a different demand for practically every encounter.
The country is suffering severely due to the delay in the 9th review negotiations for releasing the $1.11 billion tranche following the latest blow from Moody’s, which further downgraded the credit rating to CCC. In addition, regional states, except China, are increasingly siding with the IMF, adding to the complexity.
According to the sources, the Ministry of Finance calculated the external financing need at $5 billion, whereas the IMF estimated it at $7 billion. Therefore, the Pakistani authorities have asked the IMF to decrease the estimated deficit by $1 billion to address the disagreement.
According to the sources, reducing the requirements for collecting foreign exchange reserves might save an additional $1 billion.
According to the sources, the IMF forecasted an $8.2 billion annual account deficit for the current fiscal year, even though the deficit for the first seven months was just $3.7 billion. “The issue can be resolved by reducing the prediction by $1 billion,” they continued.
The administration believed it could still obtain $7 billion by June if the IMF were to modify its position. The government officials who negotiated with the IMF expressed optimism that gross official foreign exchange reserves would surpass $10 billion by June.
However, the IMF has not yet accepted Pakistan’s position on the external financing shortfall. It is still hoped that Pakistan will be able to get $2 billion in other loans from Saudi Arabia and $1 billion in extra loans from the United Arab Emirates to close the gap. Despite their lack of cooperation, it expects to earn $2 billion through the sale of assets to Gulf countries.
The Pakistani government enthusiastically accepted the Chinese support, which has already been delivered in the amount of $700 million. According to the sources, an additional $1.03 billion Chinese loan will be made available in three installments, serving as a safety net when the IMF’s demands were “unreasonable.”
According to the sources, the government allowed market forces to determine the exchange rate, which resulted in a considerable change in the rupee-dollar value compared to last month’s level of Rs230 per dollar.
Yet, the IMF continues to raise worry over government pricing manipulation. The sources asserted, “The IMF considers the exchange rate to be close to that of the grey market,” but added, “This is inaccurate.”
According to the sources, “We have stated our stance to the IMF, but they do not appear to comprehend it.”
The metric used to determine the real interest rate — the difference between inflation and the interest rate set by the central bank — likewise separates the two factions.
The IMF disputed the government’s view that the real positive interest rate should be measured against core inflation, computed after removing energy and food inflation. Pakistan was urged to compare the real positive interest rate to the total inflation rate. To ensure a big hike in interest rates before the staff level agreement, the IMF has already brought up by two weeks the next meeting of the monetary policy committee.
The finance ministry’s monthly economic outlook report indicated that “inflation will continue between 28 and 30 percent in the next months due to currency devaluation, the recent rise in energy prices, and increase in administered prices.”
Real interest rates will be 13% less at this headline inflation rate. However, after the impending rise in the core inflation rate, currently at 19 percent, the real interest rate will be marginally positive.
According to the sources, “forcing Pakistan to adjust interest rates to the headline inflation is the same as forcing us to pay the price of global inflation as well.”
According to ministry sources, the IMF has an inappropriate attitude toward Pakistan and is forcing the government to take all acts before the staff-level agreement, even though such activities are typically conducted after the staff-level agreement but before the board meeting.
Pakistan has addressed the issue again with the United States, the largest shareholder and a frequent influencer of the international lender’s stance.
A statement issued by the finance ministry after the meeting reads, “The finance minister informed him (the US deputy secretary) of the discussions held with the IMF mission on the 9th review and shared that he had completed the IMF program in the past as minister and that the government is committed to completing the present program.”
The finance minister also informed the American official of the government’s economic aims for reorienting the economy and keeping its international obligations.
Wally Adeyemo believed in the government’s economic and financial stability-achieving policies and strategies. He continued stating that he would work with Pakistan to sustain its economy.
According to the sources, the IMF’s proposal to “permanently” impose a surcharge for debt servicing during the upcoming fiscal year could not be supported.
As the IMF program would no longer cover Pakistan after it expires in June, it is inexplicable why the IMF is forcing it to take action during that period, according to the sources.
They stated that the government had already implemented the mini-budget, which totaled Rs170 billion, and permitted a rise in gas and electricity prices. They added that the IMF took longer than normal to negotiate the staff-level agreement.
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