Pakistan’s negotiations with the International Monetary Fund (IMF) have entered a decisive phase as both sides struggle to agree on key economic targets in the second half of the ongoing review for the $7 billion loan program.
Officials say the draft of the Memorandum of Economic and Financial Policies (MEFP) is being finalized, but disagreements remain over growth, exports, remittances, and fiscal benchmarks.
Govt proposes lower growth target
According to sources in the Ministry of Finance, the government has proposed reducing the economic growth target from 4.2% to 3.5% for the current fiscal year, citing the impact of recent floods. Inflation, originally targeted at 7.5%, is now expected to exceed 8%.
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A proposal has also been made to revise the annual tax collection target of Rs14,131 billion. However, any changes in the final numbers will only be decided during the IMF mission’s meeting with Federal Finance Minister Muhammad Aurangzeb. Final approval will rest with the IMF board.
Divergence on Exports and Remittances
Differences are sharp on foreign income projections.
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The government estimates remittances will reach $42 billion instead of the target of $39.4 billion, compared to the IMF’s projection of $35.76 billion.
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On exports, both sides acknowledge lower than expected performance. The IMF estimates exports will be limited to $32.98 billion against its earlier target of $35.3 billion, while the government has expressed confidence in pushing them up to $34 billion this fiscal year.
Meanwhile, the government has pegged imports at $65 billion, while the IMF’s estimate is lower at $59.59 billion. The trade deficit for the current fiscal year is estimated at $27 billion.
Current account deficit outlook
Officials briefed the IMF mission that Pakistan’s foreign exchange reserves could rise to $14.5 billion in the current fiscal year. The current account deficit, which had been projected at $2.1 billion, is now expected by the government to be reduced to $500 million.
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The IMF, however, has presented a more cautious estimate, projecting the deficit at $1.49 billion.
IMF talks to continue
Federal Law Minister Azam Nazir Tarar and other officials have stressed that despite the sharp differences, there is confidence that the issues can be resolved through negotiation and compromise. Talks between Pakistan’s economic team and the IMF mission are scheduled to continue for two more days in Islamabad.
If the parties reach an agreement, Pakistan is expected to secure the next tranche of $1.2 billion under the extended loan program.
