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Pakistan to decide on IMF loan agreement today

in International Business

Pakistan to decide on IMF loan agreement today

IMFMinistry of Finance will decide today whether Pakistan will enter a fresh loan agreement with International Monetary Fund.

According to sources, Pakistan and the IMF will have to agree upon eight conditionalities for entering into a fresh bailout package of $4.5 to $5 billion. Once agreed, the Fund will extend a Letter of Intent (LoI) with one likely condition that it should be duly signed by the prime minister of the country.

In case of no agreement with the IMF, the Fund’s mission will leave Islamabad on Wednesday. Usually, the LoI has been signed by the finance minster and governor State Bank of Pakistan. But it is so far the demand of the IMF that it should be signed by the prime minister of the country to give ownership to the promised reforms by the political leadership.

It is yet to be seen whether the Pakistani side agrees to this condition or convinces the mission to drop it. “In case the IMF does not extend the LoI, it means that both sides have not evolved a consensus on a fresh bailout package.

The IMF mission will stay in Islamabad till Wednesday, so the policy level talks in the next three days are quite crucial,” official sources confirmed here on Sunday.

The conditionalities for a fresh bailout package will be divided into two main sectors —- taxation side and energy. The IMF, the sources said, will also press upon Islamabad to jack up the discount rates in the months ahead.

While criticizing the monetary policy of the State Bank of Pakistan (SBP), the IMF has asked the central bank to jack up the interest rates in order to lure foreign inflows into the country at a time when the country’s reserves are dwindling at a fast pace.

A top official who is privy to the ongoing talks between Pakistan and the IMF said that Governor State Bank of Pakistan Yaseen Anwar led the Pakistani side on last Thursday and Friday for negotiating the monetary policy with the Fund’s team led by Jeffery Franks.

The IMF criticized the SBP for reducing the discount rates by 500 basic points in the last two years and questioned the objectives of the central bank whether it was pursuing to promote growth or tackle inflation or anything else because the stance of the SBP was sending confusing signals to the market.

But the central bank objected to the demand of the IMF’s visiting mission and took the stance that normal economic theories did not apply in the case of Pakistan because there were non economic factors such as terrorist attacks and law and order situation that did not allow an increase in foreign portfolio investment in the country and it had nothing to do with a decrease in discount rates.

“This debate turned into divergent views between both the sides,” said the official and added that divergent views among economists could not be termed as a heated debate.

The SBP high-ups argued during the meeting that inflation was consistently on a decline and it was the assessment of the central bank that it would not rebound in the near future. “Keeping in view this assessment, the SBP has reduced its discount rate in the recently-announced monetary policy,” said the SBP official who was also attending the meeting. (thenews.com.pk)



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