Pakistan wants IMF to separate FATF from programme – Newspaper

ISLAMABAD: Pakistan has asked the International Monetary Fund (IMF) to relax conditionalities under the $ 6 billion Extended Fund (EFF) related to the Financial Action Task Force (FATF) and the issuance of sovereign guarantees to help raise more than $ 4 billion of national and international funds markets

Pakistan has budgeted around $ 3 billion of bonds (around Rs450 billion) – Islamic Sukuk and Eurobond – to be launched in international capital markets during the current fiscal year to meet the EFF objectives for foreign exchange inflows . Separately, the government has planned to raise around Rs200bn from national Islamic banks so that the electricity sector reduces circular debt.

"We are dying to complete these transactions as soon as possible," said a senior official Dawn, adding that capital market conditions were never as conducive as they are today. He said bond yields had plummeted to almost zero in international capital markets and that it was difficult for investors to make a profit on guaranteed paper. "This provides an ideal opportunity for Pakistan to take advantage of international capital markets to secure sovereign bonds at a minimum interest rate," the official said.

Pakistan had last taken advantage of international capital markets in 2016 with a profit margin of approximately 8.25 percent when the average return ranged from 3 to 5 percent for other countries.

Similarly, the government had negotiated Islamic financing worth Rs200bn for the electricity sector of national banks in recent months in addition to other Rs200bn insured earlier this year.

It asks the Fund to allow the issuance of sovereign guarantees to raise more than $ 4 billion through bonds

But all of these transactions are limited by IMF conditionalities as part of the 39-month FEP. One of the structural benchmarks under the IMF program is for Pakistan to "take measures to strengthen the effectiveness of the AML / CFT framework (fight against money laundering / fight against terrorist financing) to support the country's efforts to exit from the list of FATF jurisdictions with serious deficiencies "at the end of October 2019.

Similarly, one of the six performance criteria under the IMF program for Pakistan is to have a "limit on the amount of government guarantees" to the extent of Rs 1.6 trillion throughout the current year, that is, until the end of June 2020.

The official said the finance ministry had already addressed the issue of separating the FATF from the IMF-supported economic program outside of recent IMF / World Bank meetings in Washington. The Pakistani delegation, headed by the adviser to the Prime Minister of Finance and Revenue, Dr. Hafeez Shaikh and composed of the governor of the State Bank, Dr. Reza Baqir, and the secretary of Finance, Naveed Kamran Baloch, also met with the management and the governors of the IMF.

The authorities said that the authorities had argued that the FATF had a very broad scope, at times of geopolitical nature, and that it did not have a direct link to the economic support package, which should be treated solely on the basis of financial and monetary policies .

Another official said Pakistan was considering launching at least one of the two bonds, the Islamic Sukuk or Eurobond, before the end of December this year and completing the budgeted target of $ 3 billion before June next year.

A senior official said that Pakistan had achieved almost all the objectives for the first quarterly review and had achieved a saving of Rs9 billion in current government expenditures. The size of sovereign guarantees was Rs1.6tr at the end of June 2019 compared to Rs1.3tr at the end of December 2018.

According to the IMF program, the guarantees must remain frozen at Rs1.6tr as performance criteria until December and remain as an indicative objective until the end of June 2020.

Pakistan now wants this limit removed to launch national and international bonds that are not possible without sovereign guarantees.

The sources said the IMF also insisted on making more adjustments to the electricity rate by 10 percent in two phases, in January and March next year, and the National Electric Power Regulatory Authority was asked to do what was necessary. soon as possible.

An IMF team led by the Head of Mission to Pakistan, Ernesto Ramírez-Rigo, is currently in Pakistan for its first review under the $ 6 billion rescue package and will end the visit before November 7. The successful completion of the review would allow Pakistan to withdraw another $ 453 million from the Fund in the first part of December this year, bringing the total amount to almost $ 1.44 billion.

In July this year, the IMF made an initial outlay of $ 991 million by completing all previous actions committed by Pakistan before signing the Fund's program.

Posted on Dawn, October 31, 2019