IMF approves $497m tranche for Pakistan after bailout review

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ISLAMABAD: The International Monetary Fund (IMF) said on Thursday it had agreed to release a $497 million tranche for Pakistan after the latest review of a bailout package awarded in 2013, though the disbursement still requires IMF board approval.

The tranche comes as “economic activity remains robust,” the IMF said, welcoming what it termed the government’s “strong performance” in the second quarter of fiscal year 2015-2016 (FY15-16).

“All end-December 2015 quantitative performance criteria, including the budget deficit target and the floor on the State Bank of Pakistan’s (SBP) net international reserves have been met,” it said.

But while structural benchmarks have been met, measures pertaining to energy sector reform and restructuring of loss-making public enterprises have yet to be implemented, the IMF said.

“A weak cotton harvest, declining exports and a more challenging external environment” pose a threat to growth prospects, the IMF said, while real Gross Domestic Product (GDP) growth is expected to reach 4.5 per cent in FY15-16.

Lower oil prices, planned improvements in power supply and investment in relation to the China-Pakistan Economic Corridor, construction and acceleration of credit growth are seen as the main drivers behind the forecasted growth.

Despite a rise in consumer price inflation, inflation is expected to remain under control through “prudent monetary policy,” the IMF said, also appreciating “strong tax revenue collection” during the second quarter of FY15-16, which it said helped overcome the shortfall from the previous quarter.

The main priority, the IMF said, is further consolidation gains and strengthening of the long-term resilience of the economy. “To this end, advancing the energy sector reform, setting in motion competitiveness-enhancing improvements in the business climate, continuing to expand the tax net, and ending losses in public enterprises will be critical,” an IMF statement said.

Once the latest disbursement is made, the IMF will still have to release $1.1 billion of the total $6.7bn loan agreed three years ago.

‘Committed to turning around state-owned enterprises’

Addressing a press conference alongside IMF Mission Chief Harald Finger, Finance Minister Ishaq Dar reiterated the government’s resolve to “convert loss-making state-owned enterprises into profitable enterprises”.

He denied that the government had “rolled back” on its plans to save state-owned institutions, saying, “We will do everything possible to bring structural changes to make sure bleeding is stopped.”

Dar said the government was committed to saving taxpayers’ money, and that the IMF review is an indicator that the government is continuing with its mission and manifesto.

An IMF staff mission led by Finger visited Dubai during Jan 26-Feb 4 to discuss the tenth review of Pakistan’s economic programme supported by a three-year IMF EFF arrangement, an IMF press release stated.

The IMF team met Ishaq Dar, State Bank Governor Ashraf Wathra and other senior officials.

An IMF loan helped Pakistan stave off a default in 2013, when dwindling foreign exchange reserves covered less than six weeks of imports.

Pakistan’s reserves have since swelled to $20.5 billion in January from $11bn in mid-2013.

‘IMF frustration over privatisation delays’

Earlier today, the ministry of finance denied reports that IMF officials were angered at Pakistan’s lack of progress concerning privatisation of power companies and other state-owned entities.

“The Reuters story is not true, we are sorry to see them carrying the story,” stated the secretary of finance.

Reuters had earlier reported that Pakistan has shelved plans to privatise its power supply companies and will miss deadlines to sell other loss-making state firms, reneging on promises Islamabad had made to the International Monetary Fund (IMF) in return for a $6.7 billion bailout three years ago.

Two government officials with direct knowledge of the situation said IMF officials meeting with Pakistani officials in Dubai this week were angered by the backtracking, but they expected the IMF would still release the remaining $1.6 billion to be disbursed.

For all the IMF’s frustration over the privatisation delays, the government has pushed ahead on other reforms, the Pakistani officials claimed.

“It was embarrassing and brutal,” a senior Pakistani official present at the meeting in Dubai, told Reuters, describing the IMF’s response when mission head Harald Finger was told that the government had decided not to sell nine power distribution companies because of fear of labour unrest.

“It was nothing less than a dressing down. If the IMF still doesn’t penalise us, then all I can say is, ‘We’re very lucky,’” the official said.

The other source, a senior finance ministry official who was also in Dubai, confirmed the account.

Both Pakistani officials said the IMF had made clear its frustration with the delays to privatisation drive.

“The IMF is asking the obvious question: ‘Why didn’t you start negotiations [with unions]earlier? Why wasn’t this handled better at the political level?'” the senior government official said.

The Pakistani officials told the IMF that taking on the power companies’ 400,000 unionised employees was fraught with risk, and that instead the government would bring in independent boards of directors to improve management.

Pakistan has already missed last year’s deadlines to solicit buyer interest in PIA, and the officials said the government has now informed the IMF it would miss the June 2016 deadline to conclude the sale of 26 percent shares of the airline.

Pakistan will also miss its deadline to sell Pakistan Steel Mills by March this year, the officials said.

Privatisation of loss-making enterprises

The privatisation of 68 state-owned companies, which include loss-making enterprises like Pakistan International Airlines and Pakistan Steel Mills, is a crucial part of the IMF deal and was meant to bring the country’s finances back on track.

Such enterprises drain about $5 billion every year from state coffers, around an eighth of the government’s fiscal revenues last year of around four trillion rupees ($38.2 billion).

The government has made some progress, including raising more than $1 billion by selling its entire stake in Habib Bank Ltd, but has struggled to find buyers for most of the companies and faced stiff opposition from labour unions.

Privatisation of PIA, workers strikes

Angry PIA employees have striked for three days against the government’s proposed plan to privatise the national flag carrier and offered funeral prayers in absentia of their colleagues who were shot dead during a protest rally in Karachi on Tuesday.

Protesters clashed with security officials on Tuesday over plans to privatise the national airline, leaving two people dead. Most PIA flights were grounded on Wednesday and Thursday.

Passengers were seen stranded on airports across the country as the government’s claim of having made alternative arrangements to ensure smooth flight operations failed to meet reality checks.

PIA employees’ Joint Action Committee spokesman earlier told Dawn.com that employees would continue to strike as the government had not accepted their four-point agenda.

Prime Minister Nawaz Sharif on Monday invoked the Essential Services (Maintenance) Act 1952 for six months, barring protesting members of the Pakistan International Airlines from participating in any union activity.

The strike, however, were not halted. While flight operations were initially on schedule, they were also halted across the country following the deaths of PIA employees Inayat Raza and Salim during Monday’s protest.

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