Talks between Pakistan and the IMF to restart a $ 6 billion loan program have been stalled by Prime Minister Imran Khan’s refusal to introduce unpopular measures, senior government officials have said.
Formal talks to release a tranche of funding have been postponed due to concerns in Islamabad that the introduction of loan-related reforms would provoke a backlash from the hard-hit middle class.
An IMF team due to visit Islamabad in October has not yet arrived “because the fund is waiting to see if we are ready to take further measures to reduce the [fiscal] deficit, ”said one of the officials.
“Given the coronavirus this year, our economy continues to underperform. Tax revenues are declining, ”he added.
Friction points between Islamabad and the IMF when the program resumes include increasing electricity tariffs, higher tax collection targets and increasing the pension rate, which has been lowered to 7% in June against 13.25% earlier in the year.
Pakistan’s economy has not suffered as much of a shock as neighboring India. The Asian Development Bank predicted that the economy would contract 0.4 percent in 2020, but grow 2 percent next year. Mr. Khan spurred growth by unveiling big incentives for the construction industry.
We are in a debt trap which is entirely our fault. It’s a risk to our national security
But analysts said Pakistan needed to join the IMF’s program to honor its debt repayments and release more funds from international financial institutions, such as the World Bank, as well as to finalize a billion euro Eurobond. dollars.
Pakistan’s external debt and liabilities increased from $ 95 billion in 2018 to nearly $ 113 billion in 2020, with a subsequent increase in debt service, according to the State Bank of Pakistan in its published annual report Wednesday.
“We are in a debt trap that is entirely our fault. It’s a risk to our national security, ”said the Institute for Policy Reforms, a Lahore-based think tank.
Sakib Sherani, economist and former finance ministry adviser, said the protests launched by Pakistani opposition parties against Khan “have made it more difficult for the government to adopt unpopular measures. Difficult reforms are always painful. Now is not the time for painful measures. “
Miftah Ismail, former finance minister and opposition leader, said an agreement between Khan and the IMF to reduce the budget deficit appeared to be collapsing. “So far, a plan to reform the tax collection system does not appear to be working,” Mr. Ismail said.
Pakistan is under further pressure after Saudi Arabia demanded repayment of part of a $ 3 billion loan and froze an oil credit facility worth more than $ 3 billion. Officials in Islamabad said Riyadh was afraid to ask for more. This would force Pakistan to seek further loans from China.
“Imran Khan would not be so keen to [fiscal] tightening again, especially when you take into account that there is political pressure, “said Ali Farid Khwaja, analyst at brokerage Khadim Ali Shah Bukhari Securities in Karachi,” but it is essential to embark on a program from the IMF.
A government official told the Financial Times that Pakistan hopes to resume talks by the end of November, but there has been no confirmation from the IMF.
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