Federal Finance Minister Miftah Ismail reached Washington with a mammoth task to revive the stalled International Monetary Fund (IMF) programme, which was now deemed necessary to avert Pakistan’s looming balance of payments crisis.
He will hold meetings with the World Bank representatives and the US officials to ease the political tensions after ousted prime minister Imran Khan accused the United States of conspiring against him.
Before his departure, the finance minister in a media briefing said that the IMF has set five major conditions for the revival of the $6 billion bailout package, including reversal of fuel subsidies and withdrawal of the tax amnesty scheme.
The other conditions are increase in electricity tariffs, imposition of new taxes and ensuring fiscal savings aimed at bringing down the projected primary budget deficit of Rs1.3 trillion to the earlier agreed limit of a surplus of Rs25 billion.
“By not taking tax on petrol and diesel, Imran Khan has put our coalition government in trouble. Making petrol cheaper is not a favour, it is the nation’s money through which they give subsidies,” Ismail said.
He said that the government was giving a subsidy of Rs52/litre on diesel and Rs21/litre on petrol. Around Rs68 billion in this account were paid in April from the national exchequer, the minister said.
“This is double the cost of the administrative expenses of our civilian government. We cannot keep this up. The prime minister [Shehbaz Sharif] will have to take a decision in this regard,” he added.
The minister expressed the hope that China would soon roll over $2.4 billion in commercial loans and a rollover of strategic deposits of $2 billion in May and July 2022.
The financing gap of $8 to $9 billion would be bridged by June 2022 so that the foreign exchange reserves would not deplete from the existing levels.
Ismail alleged that former finance minister Shaukat Tarin or the Finance Ministry did not move any summary for providing fuel subsidy, which according to estimates, caused a loss of Rs150 billion, including foregone taxes and levy. It will cost Rs1.8 trillion on an annual basis, which is more than the total expenditure on defence requirements, he added.
According to him, during the PTI government, the country’s foreign loans doubled and reached $102 billion, while the current account deficit stood at $43 billion.
He said he would attend the annual spring meetings of the IMF and the World Bank. He said he is planning to meet the IMF managing director, deputy managing director, executive directors of several important countries, and World Bank’s high-ups at the event. He also plans bilateral meetings with the Chinese, Turkish and Saudi counterparts on the sidelines of the annual spring meetings of Bretton Wood Institutions (BWIs).
The minister was quite optimistic about the revival of the IMF programme, saying that Pakistani side would make all efforts to convince the IMF to revive the stalled programme and get the pending 7th tranche of $1 billion under the $6 billion Extended Fund Facility.
Pakistan would not make a request for clubbing the 7th and 8th reviews simultaneously under the EFF arrangement with the IMF, he said, adding that his first priority would be the revival of the IMF programme.
The total public debt and liabilities stood at Rs30 trillion in the first 74 years but under the PTI-led government it went up to Rs52 trillion. The budget deficit increased massively. The external debt increased $1 billion/annum but under the previous government, it went up $8 billion on an average in the last three years, Ismail said.
Federal Board of Revenue (FBR) former chairman Shabbar Zaidi also endorsed the views of the finance minister that a substantial increase in the fuel prices is inevitable along with a hike in the electricity charges.
“During the talks, I think the energy sector will come under the hammer and the government is likely to give its consent to the IMF in this regard. I think the finance minister already indicated it,” he observed.
For Zaidi, the way the value of the rupee is depleting, the government has to take unpopular decisions to avert balance of payments crisis.
“As per my knowledge, the government has already given consent to withdraw fuel subsidy and an increase in the electricity tariff and these decisions would be announced soon,” he added.
A senior official in the Ministry of Finance said the new government is in a Catch-22 situation where it is not in a position to commit anything, which will cost it dearly in the upcoming elections. However, he said, the twin deficits are now getting beyond the government’s control, while the IMF wanted it to be controlled. Because of the higher energy prices, the trade deficit has already crossed $35 billion in the nine months of FY22 and in the eight months, the current account deficit rose to $12 billion and is likely to touch $20 billion, the official said, adding that because of the balance of payments crisis, the foreign exchange reserves of the central bank declined by $5.3 billion in just 40 days.
The political considerations of this new coalition government and the previous government cost dearly to the economy.
“The PTI government sold expensive imported liquefied natural gas (LNG) at the rate of locally produced cheaper gas to the domestic consumers that brings the circular debt of gas to Rs1.3 trillion along with Rs2.5 trillion of the power sector,” he added.
The government is also hesitant to take tough decisions that could hurt them in the elections, which are likely to be held within a year, he said.
Prime Minister Shehbaz Sharif is also taking popular decisions, sticking with the previous government’s decision to freeze fuel prices, and further adding the burden on the national exchequer by announcing a 10 per cent increase in pension.
“Because of these populist decisions, we landed into the financial crisis and compromised our national sovereignty by taking loans from international donors,” he said.
Head of Research at Pak-Kuwait Investment Bank Samiullah Tariq said that the government is unlikely to give any commitment to the IMF, which may cause any negative impact on their election campaign.
Senior PML-N leader Khawaja Asif has showed his reservations publicly over the autonomy that the previous government had granted to the State Bank of Pakistan (SBP) during its tenure.
“I think Khwaja Asif’s statement will not go well during the negotiations because this was a longstanding demand of the IMF,” he said.
The defence minister said Imran Khan had “sold out” Pakistan’s economic sovereignty to the US, as Washington enjoys a majority of stakes in the IMF.
“The IMF is an institution in which the US is the largest shareholder. Imran Khan sold out our economic sovereignty to them, as he handed over our central bank — our bank of the last resort — to the IMF,” he said.
The defence minister also assured that the SBP Governor Dr Reza Baqir would not be given any extension in his term, which is expiring on May 4, 2022.
“His term is about to end and we will not retain him,” he added.
While in the opposition, the finance minister expressed the same views regarding the central bank governor and former finance minister Dr Abdul Hafeez Shaikh.