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Express Tribune
19-05-2025
- Business
- Express Tribune
'IMF conditions part of reforms'
Pakistan said on Monday that 11 new structural benchmarks by the International Monetary Fund (IMF) were not new conditions but a "continuation" and "natural next step" of the $7 billion programme to roll out the agreed reforms agenda. It said that some of these benchmarks, including a requirement to submit a plan for the smooth transition to an interest-free economy and debt servicing surcharge, had to be included due to developments that took place after the finalisation of the Memorandum for Economic and Financial Policies (MEFP) with the IMF in September last year. In a detailed statement on the rationale behind adding "new structural benchmarks" by the IMF, the Ministry of Finance said these were advancing or continuing actions under the broad policy goals set at the outset of the programme. The ministry said that actions already completed were moving to the next phase, while others were updated or reiterated to ensure that policy goals under the programme were met. On the IMF condition to publish a new Post-2027 Financial Sector Strategy, the ministry said that, "This benchmark was set in light of the 26th constitutional amendment passed in October 2024. Since the amendment took place after MEFP approval, the action could not be included in the September 2024 MEFP." It added that the action aligned the reform process with the country's constitutional priorities. In return for the Jamiat Ulema-e-Islam's support for the 26th Constitutional amendment, the government had included an article in the Constitution to abolish the interest-based economic system. The IMF staff report stated that clarity on the structure and rules of the financial system post-2027 would allow market participants to prepare and ensure financial stability during the transition. The Fund said Pakistan's strategy should clearly identify and prepare for the implications of removing 'riba' (interest) from the economy by January 2028, following the constitutional amendment. The decision would significantly impact the structure of the financial sector, stability, banking supervision, and monetary policy implementation. The global lender said that publishing this financial plan and providing guidance would help align expectations of market participants, investors, and regulators, allow time for preparation, and mitigate any cliff effect (proposed new SB, end-June 2026). The IMF report further stated that the government should develop a strategic action plan to support capital market development to address the sovereign-bank nexus, and improve access to private sector financing. In response to the IMF's concerns, the Fund included the government's position in last week's report. "We recognise that clarity on financial sector reform objectives helps build trust in institutions and policies, and thus the Ministry of Finance will lead a government effort which, in collaboration with the State Bank of Pakistan (SBP), will prepare a plan outlining the government's post-2027 financial sector strategy, outlining the institutional and regulatory environment from 2028 onwards and providing clear expectations for financial institutions (new end-June 2026 SB), with work starting by end-October 2025," reads the report. The ministry said that the structural benchmark to approve the fiscal year 2026 budget in consultation with the IMF was not a new condition. It was a continuation of ongoing fiscal consolidation targets, including the primary surplus target of 1.7% of GDP for fiscal year 2026. It added that steps related to agricultural income taxation, including legal amendments and implementation from July 1, 2025, were detailed in the September 2024 MEFP. These were not new, but scheduled follow-up actions. The ministry said the increase in Benazir Income Support Programme (BISP)transfer under the Kafalat Programme predated the current Extended Fund Facility (EFF). It was part of the 2023 programme and continued under the current programme, hence not a new conditionality. On the new IMF benchmark about Governance Diagnostic Assessment, the ministry said the commitment to publish governance reform recommendations stemmed from the September 2024 MEFP and the publication was a natural next step. The structural benchmark to adopt legislation making the captive power levy permanent operationalised an agreed reform in the September 2024 MEFP to disincentivise captive power, with the objective of phasing it out. The ministry said benchmarks about electricity tariff and gas price adjustments related to annual electricity rebasing and biannual gas tariff adjustment, which were part of the strategy to contain circular debt. These were continuous benchmarks reiterated for the next fiscal year. The ministry added that the new benchmark about the Debt Service Surcharge Cap Removal resulted from the government's plan to convert up to 80% of Central Power Purchasing Agency (CPPA) arrears into debt. As this plan was proposed after the September 2024 MEFP, the benchmark was added during the current review. On the Special Zones Incentives phase-out plan, the ministry said that eliminating incentives for Special Technology Zones (STZs) by 2035 extended earlier commitments for Special Economic Zones (SEZs) and Export Processing Zones (EPZs). It broadened the scope to all zones to ensure a level playing field for investment. It said the condition about used car import policy was part of lifting quantitative restrictions on commercial importation of used motor vehicles. Restrictions would initially be lifted for vehicles less than five years old, subject to meeting minimum environmental and safety standards. This, too, was a next step under the September 2024 MEFP. The ministry said removing trade restrictions was part of Pakistan's commitment to integrate with world trade by reducing non-tariff barriers and avoiding prolonged trade-distortive measures. "The EFF programme is designed to support gradual, medium-term reforms to achieve the government's policy goals. As each review builds upon the previous one, benchmarks reflect logical progression of existing commitments," it added.
Express Tribune
16-03-2025
- Business
- Express Tribune
IMF sees progress in loan talks
The International Monetary Fund mission has returned to Washington without reaching a staff-level agreement with Pakistan for the release of over $1 billion loan tranche but it said that "significant progress" was made during the talks towards striking a deal. A day after the end of the first review talks, the IMF issued a press statement that acknowledged "strong implementation" on the programme. But it remained short of announcing the Staff Level Agreement, which is critical to maintaining economic stability in Pakistan. One of the reasons for not announcing the agreement was that the IMF handed over the first draft of the Memorandum for Economic and Financial Policies (MEFP) to Pakistan just before its departure to Washington, said the senior finance ministry officials. They stated that the agreement would be reached very soon once a consensus is achieved on the MEFP. The MEFP is a policy document that defines the basis of cooperation during the programme period and it is revised after the end of every review programme. IMF Mission Chief Nathan Porter announced through a news statement that "the mission and the authorities will continue policy discussions virtually to finalise these discussions over the coming days". Without the staff level agreement, the IMF management cannot take Pakistan's case to the board for the approval and completion of the first review and the disbursement of the second loan tranche of over $1 billion. "The IMF and the Pakistani authorities made significant progress toward reaching a Staff Level Agreement (SLA) on the first review under the 37-month Extended Arrangement under the Extended Fund Facility (EFF), said Nathan Porter, the IMF mission chief. The smooth continuation of the programme is critical to uninterrupted rollovers of the foreign debts by four bilateral creditors, Saudi Arabia, the United Arab Emirates, China and Kuwait. The Ministry of Finance on Saturday gave a detailed briefing to Prime Minister Shehbaz Sharif about the outcomes of the review talks, according to government sources. They said that the prime minister was apprised about the progress and the new proposed structural benchmarks by the IMF. Pakistan and the IMF talks were held from March 3 to 14. Before the EFF mission, the IMF also held meetings for the $1.3 billion worth Resilience and Sustainability Facility (RSF) -- the 26th lending package that Islamabad is seeking for climate change related spending. The Finance Ministry officials still hoped that the staff level agreement will be reached in the next two to three weeks. They said that the IMF did not have major issues in the implementation of the programme. However, they added, both sides were still adjusting the fiscal and the power sector related targets. It took the IMF and Pakistan almost three months to reach a staff level agreement for the $7 billion 25th IMF package last year. The talks had ended without an agreement on May 23rd last year but the agreement was reached on July 12th, following an approval by the board in September. The Finance Ministry officials said that most of the discussions have taken place. Strong implementation The IMF acknowledged progress on the implementation of key reforms. The "programme implementation has been strong, and the discussions have made considerable progress in several areas", Porter said. The mission chief added that progress was made on the planned fiscal consolidation to durably reduce public debt, maintenance of sufficiently tight monetary policy to maintain low inflation, acceleration of cost-reducing reforms to improve energy sector viability, and implementation of Pakistan's structural reform agenda to accelerate growth. He said that the discussions were also held to strengthen social protection and rebuild health and education spending. The sources said that during the talks, the IMF emphasized a steady path of economic growth and avoiding any new sprint that can cause a balance of payments crisis. The sources said that the IMF has projected 2.8% economic growth rate for the next fiscal year, which is slightly lower than the government's downward revised projection of 3.1%. The budget target for the economic growth is 3.6%. The government did make progress on the fiscal front but it could not undertake the structural reforms, said Miftah Ismail, former Finance Minister. The provincial governments introduced Agriculture Income Tax laws with a delay but the implementation has not yet begun, which is a breach of the programme. Likewise, the government has not amended the Sovereign Wealth Fund Act and it also implemented the condition on making the gas for the captive power plants unaffordable with a delay. The Finance Ministry met the conditions on the primary budget surplus and increased the debt maturity period. But the Federal Board of Revenue failed to achieve its tax targets and the Tajir Dost Scheme also badly failed. The central bank did achieve its targets and it also committed with the IMF to keep the monetary policy tight, said the sources. The IMF did raise some concerns about the rigidity in the exchange rate regime but no major change in the path is expected, said the sources. RSF loan Nathan Porter said that the "progress has also been made in discussions on the authorities' climate reform agenda, which aims to reduce vulnerabilities from natural disasters-related risks, and accompanying reforms which could be supported under a possible arrangement under the Resilience and Sustainability Facility (RSF). Pakistan is seeking 1 billion SDR or $1.32 billion new loan for coping with the climate change issues. The IMF has proposed 13 conditions for the new loan, including slapping carbon levy on the petroleum products and internal combustion engine cars.
