‘IMF stands ready to support Pakistan,’ says Lagarde after meeting PM Khan

Prime Minister Imran Khan on Sunday met International Monetary Fund (IMF) Managing Director Christine Lagarde on the sidelines of the World Government Summit taking place in Dubai.

Although no details regarding the meeting were immediately issued by the government, a press release issued by the IMF said Lagarde’s meeting with the premier had been “good and constructive”. The meeting was held to discuss conditionalities that have held up Pakistan’s accession to the Fund’s bailout programme.

“We discussed recent economic developments and prospects for Pakistan in the context of ongoing discussions toward an IMF-supported programme,” Lagarde was quoted as saying by the statement.

“I reiterated that the IMF stands ready to support Pakistan

The IMF chief said she highlighted during the conversation that Pakistan could “restore the resilience of its economy” through “decisive policies and a strong package of economic reforms”

Citing the PTI government’s policy agenda, Lagarde said protecting the poor and strengthening governance were “key priorities to improve people’s living standards in a sustainable manner”.

Earlier, Information Minister Fawad Chaudhry had said the Khan-Lagarde meeting would “give us a chance to understand the IMF views and we will be able to give our version to [the] IMF chief”, Radio Pakistan reported. Chaudhry claimed that Pakistan wants “a fair deal that can actually help Pakistan in the short-term without affecting our long-term economic goals”.

Meanwhile, Foreign Minister Shah Mehmood Qureshi stressed that Islamabad wanted to proceed with the bailout package under conditions that would not add an unjustified burden on the common man.

Stumbling issue in IMF bailout talks

The IMF is asking for an adjustment of around Rs1,600-2,000 billion over three to four years. It also wants some corrective measures to put Pakistan’s economy on the right track after witnessing the highest-ever current account deficit.

But the stumbling issue in the talks is the pace of adjustments in the current expenditure. The emphasis on current expenditures comes as a result of a focus on what is known as a ‘primary balance’ in the parlance of public finance.

According to a senior official involved in the negotiations, there is some space for a cut in certain expenditures where Pakistan is in a comfortable position. “This agreement in cut will pave way for accession to the programme,” the official claimed, adding it will be a politically difficult decision.

A cut in the current expenditures still seems to put the government in awkward position by making adjustments in subsidies and other special grants.

The IMF has been demanding that the burden of any expenditure cuts should fall on current expenditures that include debt service, defence and subsidies. Previous governments decreased development expenditures when undertaking the Fund’s adjustment and usually left current expenditures alone (other than subsidies).

But the official said there is certain non-development spending which cannot be discontinued or reduced.

The primary balance of a government’s budget is the difference between revenues and expenditures after removing interest payments. It tests whether the path of debt accumulation of any country is sustainable or not.

If this is in deficit then it means that at least some of the interest payments due in the given year will have to be made through borrowing.

Cutting the primary deficit requires a cut in current expenditures, and usually becomes necessary when reducing debt-to-GDP ratio is a priority.

Finance Division’s Spokes­person Dr Khaqan Najeeb told Dawn that productive dialogue continues with IMF on all areas including fiscal, energy, structural reforms and monetary policy. Discussions are part of regular ongoing interaction between government and IMF and will continue in coming weeks as well, he said, adding that “technical level subject-specific discussions also support the process of overall dialogue”.

According to Najeeb, the government has already taken several policy measures including an increase in interest rate, gas and electricity tariffs along with revenue measures.

The Ministry of Finance recently announced that the Federal Board of Revenue’s (FBR) target would not be revised downward following a revenue shortfall of Rs191bn in the first seven months.

The FBR has been asked to take administrative measures including revival of tax on mobile phone cards to cover up the shortfall in reaching the budgetary target.

The Fund has also asked for further monetary tightening as well as a complete free float of the exchange rate.

“We are already towards target in these areas,” the official said, adding the IMF has acknowledged these measures.

According to the official, the finance minister has already conveyed to the IMF during recent parleys that only those measures will be taken which are favourable for country’s economic growth.

Although the government has secured breathing space through Saudi Arabian and United Arab Emirates loans, an IMF programme is essential to unlock access to resources from other multilateral lenders like the World Bank and the Asian Development Bank, as well as global capital markets