Pakistan, IMF enter final stage of talks for fifth tranche

Pakistan and the International Monetary Fund have entered the final stage of negotiations for the release of the fifth tranche under the country’s ongoing loan program, with talks expected to conclude by October 7, according to sources familiar with the discussions.

An understanding has been reached that no new taxes will be imposed during the current fiscal year, the sources said.

An IMF mission is also expected to meet Prime Minister Shehbaz Sharif soon and brief him on the latest progress in the negotiations, the sources said.

Policy-level discussions are expected to finalize the remaining targets and benchmarks under the program. The IMF has already been briefed on the latest developments at the Securities and Exchange Commission of Pakistan, as well as progress on the government’s privatization agenda, the sources said.

The Fund was also briefed on requests for expressions of interest for the proposed privatization of three electricity distribution companies, they said.

If the negotiations are successfully completed, the IMF mission is expected to recommend the release of about USD 1.2 billion to Pakistan, according to the sources.

The sources said Pakistan had met most of the economic targets agreed under the program and that the final discussions would focus on nine remaining tables and associated benchmarks.

What issues remain in the IMF talks?

One of the issues still under discussion is the government’s auto policy, particularly a proposal to increase the sales tax on electric vehicles from 1% to 18%, the sources said. Final discussions on the measure are expected during the concluding phase of the talks.

The sources said the risk of a mini-budget had been averted and that Pakistan was not expected to introduce new taxes during the current fiscal year.

The IMF is satisfied with Prime Minister Shehbaz Sharif’s economic policies and their implementation, while also expressing satisfaction with the economic performance of Finance Minister Muhammad Aurangzeb, the sources said.

The Fund has also appreciated the Federal Board of Revenue’s performance during the first quarter of the fiscal year, according to the sources.

The FBR collected about PKR 3,066 billion in taxes during July-September, exceeding its PKR 3,053 billion target for the period.

The improvement in tax collection means that additional tax measures are not expected to be required, the sources said. The FBR has also assured the IMF that it will achieve its tax collection target for the full fiscal year.

What else has Pakistan told the IMF?

The sources said the IMF was satisfied with Pakistan’s ability to maintain economic growth and contain fiscal and external imbalances despite the crisis in the Middle East.

Pakistan has also assured the IMF that it will finalize a new National Finance Commission award, according to the sources.

The current negotiations are part of the IMF’s review of Pakistan’s economic performance under its existing program. Completion of the review would pave the way for the release of the next tranche, subject to approval by the IMF’s relevant decision-making body.