Pakistan-IMF second review talks hit a roadblock over flood-loss estimates, governance report

Pakistan and the International Monetary Fund (IMF) were unable to conclude the second review talks within the deadline due to outstanding issues concerning the timing of the publication of the Governance and Corruption Diagnostic (GCD) Assessment report and differences over flood-loss estimates, The Express Tribune reported. 

The IMF mission returned to Washington on Thursday without announcing a staff-level agreement (SLA), a prerequisite for presenting Pakistan’s case to the IMF Executive Board for approval of two loan tranches totaling $1.2 billion under separate programmes. 

“The IMF team and the authorities will continue policy discussions with a view to settling any outstanding issues,” said Iva Petrova, IMF mission chief.

Sources said the absence of a fiscal assessment on flood damages and Pakistan’s insistence on downwardly revising the targets prevented the SLA from being announced. 

The global lender indicated that it was ready to adjust the targets but linked the move to the final assessment of these losses. Pakistan estimated total economic losses from last year’s floods at Rs744 billion, while the IMF’s assessment stood at around Rs585 billion, with fiscal losses even lower. 

Other unresolved matters included the implications of these revised flood estimates for the primary budget surplus target and the effect of the upward revision in last fiscal year’s GDP growth on projected revenues and expenditures.

On the day the review was scheduled to be finalised, the Planning Ministry convened a National Accounts Committee meeting, approving a revised 3.04% growth rate for the last fiscal year. 

Officials said the revision would further reduce the tax-to-GDP ratio, requiring additional efforts from the Federal Board of Revenue (FBR) to achieve this year’s 11% of GDP revenue target.

Circular debt reduction in the power sector also remained contentious, with the Power Division insisting Rs505 billion would be added to the flow, against the IMF’s target of Rs200 billion. The Fund also suggested reducing the public sector development programme by Rs300 billion to offset flood-related economic losses and lower tax collections.

One of the outstanding issues was the publication of the Governance and Corruption Diagnostic report, originally due by the end of July, with the implementation plan required by the end of October. Both sides are negotiating a revised deadline of mid-November for the report and mid-December for the implementation plan, which, if agreed upon, would allow the staff-level agreement to be announced.