The seventh negotiation between Pakistan and the IMF start today

For the seventh review under the Extended Fund Facility (EFF), Pakistan and the IMF will begin virtual parleys on Friday (today), where the PM’s relief package and the granting of another tax amnesty for the industrial sector will be significant sticky topics.

According to Pakistani officials, the PM’s relief plan to lower gasoline and diesel prices by Rs10 per liter and electricity rates by Rs5 per unit would immediately reduce increasing inflationary pressures by 0.6% monthly. As a result of these alleviation efforts, indirect effects on CPI inflation will be seen in the months to come.

The IMF staff, on the other hand, would express concerns about the sustainability of the fiscal deficit because of the negative effect on the growing current account deficit on the spending side. According to an individual familiar with Pakistan’s economic dynamics who spoke to this scribe on Thursday, “These kinds of landmines would have an effect on the current account deficit after four to six months and someone will have to shoulder the weight of such doled out packages.”

In the first seven months of the current fiscal year, Pakistan’s current account deficit increased to $11.6 billion, and independent experts anticipate that it may reach $20 billion for the first time in Pakistan’s history. However, it is not yet clear how big of an effect this will have on the current account deficit.

Pakistan and the IMF team will meet for one week to discuss technical issues, and then three to four days for policy discussions to wrap up the EFF arrangement’s Seventh Review. Pakistani officials may be wishing for a speedy conclusion to a pending review, given how long it took to complete the last review (6th). In order to complete the EFF program on schedule, just a limited amount of time remains until September 2022 to complete the 7th, 8th, and 9th evaluations.

The PTI-led government intends to resurrect the Price Differential Claims (PDCs) scheme, which was launched by the Musharraf and PPP-led regimes in 2008 and 2009 to lower the costs of POL goods in the domestic market. Pakistan State Oil (PSO) and other OMCs were never repaid for these PDCs, and the money remains unpaid almost 12 years later. The administration seems to have switched into election mode with these actions. The International Monetary Fund (IMF) has yet to reply publicly to this massively distributed package, which seems to be a complete reversal of the Fund-sponsored scheme.

Using the FBR’s enhanced income, the government projected spending between Rs 300 and Rs 350 billion on these two relief initiatives.