Extended loan facility: Why the IMF is driving a hard bargain with Pakistan

Pakistan’s talks with the International Monetary Fund have never been an easy proposition. Throughout history whenever the country contacted the international lender, the negotiations proved to be tough.

It is no different this time either. This is what the high-level delegation from Pakistan including the secretary finance, the governor of the state bank of Pakistan and adviser to the prime minister on Finance are now discovering.

The talks on the revival of the Fund’s three-year old $6 billion dollar bailout package are moving at a snail’s pace even though neither side is willing to accept that these negotiations are stuck.

If anything, officials in Islamabad are upbeat about the outcome that is crucial for the country for not just receiving the next tranche from the Fund but more importantly to get international endorsement for the economic reform agenda that the government says it has successfully implemented so far.

Last week the Ministry of Finance and Revenue in Islamabad said that while a specific time frame cannot be given for the conclusion of Pakistan’s talks with the IMF and no comments could be made on the ongoing parleys, there is no reason to speculate on the outcome of the process.

IMF puts the brakes

The state bank governor however sounded more upbeat when he said the talks are moving positively — a sentiment reinforced by the stand taken by the IMF Director of the Middle East and Central Asia Department, Jihad Azour, who gave two thumbs up about the ongoing talks. The adviser to the prime minister on Finance, Shaukat Tarin, also negated the impression about the talks were headed towards failure.

What is to show for this positivity? The agreement, if there is one, is yet to see the light of the day, and there aren’t any details available on the loose ends that both are trying to tie up to get the Fund’s programme going again.

This is not surprising. Since May 2019, when Pakistan reached an agreement with the IMF after months of long-winded negotiations on the Extended Fund Facility (EFF), most of the reviews done by the Fund have been problem prone.

In January 2020, the IMF put the brakes on the programme after the government did not agree to increase electricity prices and impose additional taxes.

Since then the government has raised the electricity tariff, at a great political cost to itself, but the IMF has set the bar even higher. Now it is demanding further increase of Rs4.95 per unit in electricity tariff and urging the government to also squeeze more taxes out of the public.

Tarin, on the record, acknowledged that the IMF was pushing for higher electricity and gas prices and additional taxes rates, but said at the same time that Pakistan would take these decisions on its own.

Public finance reform

There are other issues as well. The IMF programme expects public finance reform, public debt reduction, more aggressive tax policy, higher revenue mobilisation, removal of subsidies, and more equitable allocation of resources.

Then there is privatisation of the revenue-eating, loss-making enterprises and above all else, streamlining the energy sector whose complications have been a long-standing thorn in the side of the national economy.

The Imran Khan government is willing to do most of these things except those that involve politically unpopular decisions that most of his party members oppose as they fear losing vital support of their constituents more than halfway through their 5-year term. The IMF however is in no mood to show flexibility. It seems to have created a take-it-or-leave-it kind of a situation for Pakistani negotiators.

However, government officials are hopeful that this phase will be over soon and there will be an agreement of sorts in the days ahead. Of what sorts, on whose terms and at what cost — well that remains to be seen.

Syed Talat Hussain is a prominent Pakistani journalist and writer. Twitter: @TalatHussain12