On the face of it, the International Monetary Fund team in Islamabad is merely supposed to conduct the third and final review of the current Stand-By Arrangement of $3 billion, so as to decide whether the final tranche of $1 billion should be disbursed or not. However, both teams will also have in view what happens after the SBA expires on April 11. The talks are thus not so much a final review, as a preliminary to negotiating the next aid package. It is expected that the aid package will be duly applied for soon, though it has not been so far. The package to be applied for is expected to be an Extended Fund Facility of about $6 billion spread over three years. Though he was careful to put no figures on the package to be applied for, newly appointed Finance Minister Muhammad Aurangzeb has confirmed that the government will apply for the package.
Because the IMF is a bank, its explorations of how Pakistan can finance its debt repayments are wide-ranging. That might be why its first target was circular debt in the fossil fuels sector, and it has become clear that it will require further tariff raises under the new programme. At the moment, it will find the government willing to bend over backwards to get a deal. Pakistan has had an unfortunate recent history with the IMF, as the SBA only came after Pakistan failed to complete its EFF. The first SBA review under the caretakers was successful, and the present PM, who negotiated the SBA, would hope to carry forward the momentum. Some suggestions, such as ending exemptions in the next budget and not giving any amnesty scheme in it, are fairly standard.
However, the IMF has suggested that the federal-provincial share established in the last National Finance Commission, of 42.5:57.5, be changed. Critics of the 18th Amendment have focused on its putting a ban on reducing the provincial share. The criticism, which has also been voiced by the IMF team, is that there has not been a corresponding transfer of responsibilities to the provincial governments. However, getting such a reversal would tear at the fabric of the federation, apart from the monumental difficulties that the government would face in putting together the two-thirds majorities needed in both Houses of Parliament to amend the Constitution. It is also not clear how more rupees available will translate into the foreign exchange needed for debt servicing.
