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Apr
15

imfWith the State Bank of Pakistan raising concern over the country’s rapidly sliding foreign exchange reserves and higher than estimated fiscal deficit, the government will hold crucial talks with international lending agencies and the US administration this week to seek fresh inflows for budgetary support.

During its April 17-22 visit to the United States, a six-member delegation, including the secretaries for finance and economic affairs, the SBP governor, additional secretary for external finance and chairman of the Federal Board of Revenue, will enter into technical talks with the International Monetary Fund (IMF) for a $5-7.5 billion bailout package and key officials of the US treasury department for reconciliation of Coalition Support Fund (CSF) accounts for fresh inflows.

The talks will be held on the sidelines of annual spring meetings of the World Bank and IMF. The three-day meetings will begin on April 19.

The key purpose of the visit is “to engage with the fund authorities for a probable IMF programme and reconciliation of CSF funds”, according to a summary submitted to the prime minister.

An official said that in his April 5 summary, Finance Secretary Nasir Mahmood Khosa had sought approval for a delegation led by the finance minister, but unless the prime minister appoints a caretaker minister, the delegation is mostly likely to be led by Mr Khosa.

Under the IMF-WB scheme, the finance minister has to represent Pakistan at the World Bank board of governors while the SBP governor represents it at the IMF board of governors. The finance secretary and the economic affairs secretary have to act as alternative members of the boards.

An official said that while the PPP had been engaged with the IMF on a future course of action on structural reforms to put the macroeconomic framework in order over the next few years, the PML-N might have indirectly reposed confidence in Mr Khosa to proceed with discussions over workable policy measures with the IMF.

The posting as federal finance secretary of Mr Khosa, who earlier served as chief secretary of Punjab under former chief minister Shahbaz Sharif, is attributed to tacit support of the PML-N.

“It is not just a coincidence that Mr Khosa was given the important assignment after cancellation of his initial appointment as chief secretary of Sindh on the directive of the Election Commission,” an insider claimed.

Mr Khosa has started building up his own team at the ministry by bringing in Khizar Hayat Gondal, a former additional chief secretary of Punjab, as additional secretary (budget) to replace former acting secretary Abdul Khaliq, who has been made an officer on special duty.

The sources said Pakistan had estimated that arrears payable to it on account of CSF stood at $2.5bn, but US officials dismiss the claim as exaggerated. They put the amount at $1.5bn instead.

The two sides will try to reconcile their estimates so that a major part of the amount acceptable to both of them can be disbursed before closure of the financial year on June 30.

They said an IMF delegation was earlier expected to visit Pakistan for technical talks on a fresh programme to help the country shore up its foreign exchange reserves, but it had been postponed because of election activities. The two sides agreed to hold the technical talks on the sidelines of the IMF-World Bank spring meetings.

The IMF had asked the government to come up with macroeconomic data and immediate challenges being faced by the economy so that substantive discussions could take place on a new programme. Therefore, FBR Chairman Ansar Javed and External Finance Additional Secretary Mohammad Younas Dagha had been included in the delegation for the talks at the technical level, to be supported by the finance secretary and the State Bank governor for policy discussions with the IMF, the sources said.

Given the critical challenges at a time when Pakistan is passing through a political transition, the IMF appears to be under compulsion to agree to a new bailout package to ensure its repayments from the country estimated at about $6bn.

Of a total $8.3bn, Pakistan has repaid about $2.2bn to the IMF and is required to pay another $840 million during the current fiscal year. Another $5.3bn would have to be repaid over the next two years.

Officials said that except for remittances and export proceeds, none of the external inflows envisaged in the federal budget for 2012-13 had materialised so far, posing a serious challenge to depleting reserves and difficult balance of payment position and hence a need for immediate external support.

Identifying balance of payment position and inflation as key challenges, the central bank said last week that foreign exchange reserves had declined from $8.7bn, at the end of January, to $6.7bn on April 5, mainly due to debt repayments. “The balance of payment position continues to be driven by low financial inflows and high debt repayments” as net capital inflow of $34m in first eight months were insufficient to finance external current account deficit of $700m. It said the current account deficit was expected to widen in the remaining two months and the net capital and financial flows were not likely to increase considerably, hence increasing pressure on balance of payments.

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