February is nearing the end and the IMF Staff level agreement (SLA) for the 9th review is still pending. The anxiety in the markets is building up. The SLA was expected to be concluded last week; but by the end of the last week, PM himself said that terms with the IMF to take 8-10 days to conclude.

It appears that the delay is from the government side while the IMF is perhaps waiting for government to do what is required and agreed. And the government is perhaps delaying due to political development, after the apex court took a sou moto on the elections’ dates of Punjab and KP assemblies.

The pending issues with the IMF are not of sort that to delay the SLA. The IMF mission came to Pakistan after the currency was let go to find its value. That was the mainstay of Dar. And that was the sign that he had perhaps given up. Later, new taxes are being imposed as those were agreed. Gas prices have also been revised up.

And there was broad agreement on the power sector circular debt reduction plan. However, there was some miscommunication on the treatment of legacy cost of circular debt i.e., how to make the debt servicing on the part of debt being parked in PHPL. At the time of mission conclusion, the government agreed upon making it permanent. Later, there were talks about having a surcharge till June and later to be replaced by another surcharge. Ministry of finance was saying one thing while the power division had a different idea. This dilly dallying is not being liked by the IMF; but this could not be the reason of the SLA delay, as government could and would legislate it, provided, they have a will.

Then there is the issue of monetary policy decision; but with market rates going up by 2 percentage points the effective policy rate is now at 19 percent. SBP could announce it in an emergency meeting or keep waiting. In either case, the SLA would happen. Similarly, there are pending issues on the announcement of ending power sector subsidies that has been agreed with the IMF. The other issue is arranging gross financing requirement. There is a gap of $6-8 billion which must be arranged by friends. Here, if there is any delay that is from the government side.

All these steps need to be taken before the board meeting. The first thing is to have SLA on broader agreement and certain actions. Then the remaining prior actions are to be taken before the board meeting. That was the understanding of the market and things were moving fine.

However, by the end of last week, the vibes coming from the government were such that the SLA would take a week or ten days. That is unusual. As, normally the government tries to exaggerate on the dealing with the IMF with a positive spin. The question is why the government is doing the other way round. Is this due to politics? If the Supreme Court decides on enforcing authorities to give election date form provincial elections, then the PDM would be in a tight corner without any negotiation power with domestic institutions, given the IMF SLA will have been done.

Whatever it is, the delay is bad. And lately, the gap between the interbank and open market rates in currency is growing, which implies that there is some form of intervention. Talks with banking treasures reveal that based on the flows, the exchange rate is market based. However, flows are being restricted, as SBP is strictly making the banks adhere to the informal quotas assigned to them.

The bottom line is that it appears that despite the Fund’s insistence on the aforementioned terms, the authorities seem not forthcoming on how they shall proceed. There is something cooking at the government’s end. And the mistrust between the Fund and the authorities will only grow in the process.