International Monetary Fund (IMF) review

International Monetary Fund (IMF) review


The starting date for negotiations on the ninth mandatory International Monetary Fund (IMF) review,

a prerequisite to the Fund Board approval of the next tranche release

(894 million Special Drawing Rights), scheduled for 3 November 2022 as per

the seventh/eighth review documents, has not been formally announced yet.

Soon after Ishaq Dar took oath as the finance minister on 28 September he publicly

intimated that negotiations with the Fund team on the ninth review will begin on 25 October;

Jihad Azour

IMF’s Director of Middle East and Central Asia Department, during a press conference on 13 October stated:

“we will be fielding a mission in November… to Pakistan in order to start with the authorities preparing for the next review.”


the reason for this delay can only be attributed to the failure of the newly-appointed

economic team to abide by the time-bound structural benchmarks/policy

agreements in the seventh/eighth reviews – a failure that may cost this country a deferral of inflows from friendly countries pledged directly to the Fund

(rollover plus additional funding of over 4 billion dollars) as well as from multilateral

/bilaterals and make access to loans from commercial banks and issuance of Sukuk/Eurobonds prohibitively expensive.

As on 28 October 2022 foreign exchange reserves as noted on the State Bank

of Pakistan website were 8.912 billion dollars – less than two months of imports.

The question arises as to what precisely these agreed conditions were

purportedly reneged by Dar on the mistaken perception that

the Fund team will heed his recommendations with respect to phasing out the harsh conditions and/or implementation of some financially

untenable decisions while the Fund team had not been agreeable to similar requests/suggestions by his two predecessors?

The first agreed condition

that Dar violated amidst much fanfare was to announce 19.99 rupees

(inclusive of taxes) per unit of electricity to the five export-oriented sectors against 40 rupees per unit to (non-vulnerable) domestic consumers.

The argument that the exporters earn foreign currency for the country and, therefore, must be supported pales into insignificance

when one projects the rise in their personal income as a consequence.

When asked how much would it cost the taxpayers, in this context,

it is relevant to note that over 75 percent of revenue collected by

the government is from regressive indirect taxes whose incidence on the poor is greater than on the rich,

Dar stated from 80 to 100 billion rupees for the rest of the year – an amount

that would either raise the projected budget deficit,

necessitating a reduction in the Public Sector Development Programme,

with obvious negative repercussions on the already low GDP growth due to the floods, or a mini-budget.

Reports indicate that the Federal Board of Revenue (FBR) is so far focusing on

raising revenue from existing taxes through better monitoring/supervision;


if past such efforts are taken into account this would prove a futile exercise and the government would have to implement a mini-budget.

Secondly and equally disturbingly, in the previous reviews, the government agreed that failure to meet the revenue target even for one month would trigger

“immediate action to raise additional revenue as necessary through (i) immediately

setting GST on fuel products to a rate sufficient to raise revenue up to the standard rate of 17 percent;

(ii) further streamlining GST exemptions including sugary drinks (PR 60 billion) and other unwarranted exemptions such as those benefitting exporters.”

The October revenue target was missed though the cumulative collections July-October are slightly more than the target set for the first four months of the current year;

however, it is unclear whether this reasoning will be accepted by the Fund.


a little over six weeks after Dar was given the finance portfolio the rupee has stabilized at over 222 rupees to the dollar,

around 22 rupees to the dollar more than what he had forecast, a situation that reports indicate account for exchange restrictions that include capping outflow of remittances as well as limitations on advance payments for

imports against letters of credit and advance payment up to a certain amount of invoice (without LCs) for the import of eligible items.

It needs reminding that the Fund staff in the last review documents emphasised that more prominence

should be given to exchange rate flexibility as a means to address the Balance of Payment pressures rather than to administrative and exchange measures.”

It is worth mentioning that this newspaper has been highlighting that the state of the economy today,

due to consistent implementation of flawed policies of the past, is a major reason for the Fund staff’s sustained refusal to allow any leverage in terms of phasing out harsh up-front reforms.

Dar would do well to acknowledge this fact and desist from taking ill-informed decisions that he successfully took in the past.

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