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IMF talks stall over flood loss dispute | The Express Tribune
ISLAMABAD:
Pakistan and the International Monetary Fund (IMF) were unable to conclude the second review talks within the deadline due to “outstanding issues” concerning the timing of the publication of a Governance and Corruption Diagnostic Assessment report and differences over flood-loss estimates.
Officials said Pakistan estimated the total economic losses from last year’s floods at Rs744 billion, while the IMF’s assessment stood at around Rs585 billion, with fiscal losses even lower.
According to negotiators, other unresolved matters included the implications of these revised flood estimates for the primary budget surplus target, and the effect of the upward revision in last fiscal year’s GDP growth rate on projected revenues and expenditures.
On the same day the review was due to be finalised, the Planning Ministry convened a meeting of the National Accounts Committee, which approved a revised 3.04% growth rate for the last fiscal year. Officials said the revision would further reduce the tax-to-GDP ratio for that period, meaning the Federal Board of Revenue (FBR) would now require additional efforts to achieve this year’s 11% of GDP revenue target.
The IMF mission returned to Washington on Thursday without announcing a staff-level agreement — a prerequisite for presenting Pakistan’s case to the IMF Executive Board for approval of two loan tranches totaling $1.2 billion under separate programmes.
“The IMF team and the authorities will continue policy discussions with a view to settling any outstanding issues,” Iva Petrova, the IMF mission chief, said in a statement issued by the global lender.
The sources said that due to the absence of a fiscal assessment on the flood damage and Pakistan’s insistence on downward revising the targets, the staff level agreement could not be announced. They said that the IMF was ready to adjust the targets but linked it with the final assessment of these losses.
The planning ministry had presented Rs744 billion economic losses to the IMF.
The IMF indicated during the negotiations that it stood ready to review the targets during the next review of the programme and until then the Pakistani authorities should adhere to the agreed target for July-December period of this fiscal year, the sources added.
The IMF’s statement added that its team, led by Iva Petrova, visited Karachi and Islamabad from September 24 to October 8 to hold discussions on the second review under the Extended Fund Facility (EFF) and the first review under the Resilience and Sustainability Facility (RSF).
“The IMF mission and the Pakistani authorities made significant progress toward reaching a staff level agreement on the second review under the 37-month Extended Arrangement under the Extended Fund Facility and on the first review of 28-month Arrangement under the Resilience and Sustainability Facility, ” said the global lender.
“Programme implementation remains strong and broadly aligned with the authorities’ commitments”, it added.
However, the IMF did not use the word fully aligned, as the government could not uphold its words on not granting new tax concessions and implementing reforms in the state-owned enterprises.
Tax collection remained another weak area and both sides discussed downward revise the target. The IMF also asked to cut the public sector development programme by Rs300 billion to offset the impact of the economic losses and lower collection of taxes.
The IMF statement further underlined that significant progress was made in the discussions in several areas, including sustaining fiscal consolidation to strengthen the public finances while providing needed flood recovery support and ensuring inflation remains durably within the SBP’s target range by maintaining an appropriately tight and data-dependent monetary policy.
However, both Prime Minister Shehbaz Sharif and Finance Minister Muhammad Aurangzeb have been repeatedly asking the central bank to reduce interest rates, according to the statements made by both of them.
The IMF said that restoring the viability of the energy sector by implementing regular tariff adjustments and cost-reducing reforms was also important.
The sources said that one of the issues was the circular debt reduction target for the Power Division, which insisted that Rs505 billion more will be added in the flow of the debt as against the IMF’s desire to limit the losses to Rs200 billion.
The IMF said that progress was made on advancing structural reforms to reduce the footprint of the state, strengthen governance and transparency, foster a more competitive business environment, and liberalize commodity markets.
Productive discussions were also held on the authorities’ reform agenda to strengthen climate resilience, including the completion of reform measures under the RSF, said the global ender.
The IMF team also expressed its sympathy to those affected by the recent floods.
Governance report
The sources said that one of the outstanding issues was the publication of the Governance and the Corruption Diagnosis assessment report. The original deadline to publish the report was at the end of July while its implementation plan had to be published by the end of October.
Both sides were negotiating the mid of November new deadline to publish the report and mid of December to publish the implementation plan, the sources added. If there is a consensus on these dates, the staff level agreement will be announced soon, the sources added.
In its Governance and Corruption Diagnostic report, the IMF had recommended measures to enhance judicial integrity, address conflict of interest, and improve performance and service delivery. The global lender has also advised the federal cabinet, the Supreme Judicial Council and the provincial high courts, through their respective governments, to publish yearly reports.
The reports should list steps taken to strengthen judicial integrity, including statistics on complaints received, the disposition of complaints and actions taken.
To strengthen judicial integrity, the IMF advised Pakistan “strengthen integrity and conflict of interest provisions for all judicial personnel and review and increase transparency around payments and grants to judicial personnel”.
The report has also underlined that identification of politically exposed persons remained uneven and there were insufficient corruption-specific red-flags that could detect misuse of the public office in Pakistan.
The draft report further stated that reporting institutions to the regulators often lacked clarity on corruption-specific typologies and risk indicators. Sources said that the IMF was of the view that despite the specious transaction report guidelines and the red-flag indicators for various sectors and typologies, reporting institutions have limited access to typologies that reflect common methods of laundering corruption proceeds.
GDP growth
The government on Wednesday approved a 5.7% economic growth rate for the last quarter of the previous fiscal year on the back of a 20% increase in output of the industrial sector, which everyone believes is badly suffering because of tight economic conditions.
This has changed many assumptions of the IMF programme and the authorities now need more time to review the implications, the sources added.
NAC approved a 5.7% growth rate for April-June quarter, compared to only 2.8% growth in the preceding quarter, according to figures released by the Pakistan Bureau of Statistics (PBS) after the NAC meeting.
Natalie ShermanBusiness reporter
Getty ImagesPresident Donald Trump has threatened to pull out of an expected meeting with his Chinese counterpart Xi Jinping, signalling a flare-up in trade tensions between the two economic giants that sent shares in the US tumbling.
In a post on social media, Trump hit back at Beijing’s move earlier this week to tighten its rules for exports of rare earths, accusing China of “becoming very hostile” and trying to hold the world “captive”.
He said he saw “no reason” to meet with President Xi later this month, and later on Friday threatened an additional 100% tariff on Chinese goods as well as export controls on “critical software”.
The new measures against China will take effect on 1 November, Trump said.
Financial markets dropped in the wake of Trump’s remarks, with the S&P 500 closing down 2.7%, its steepest fall since April.
China dominates production of rare earths and certain other key materials, which are key components in cars, smartphones and many other items.
The last time Beijing tightened export controls – after Trump raised tariffs on Chinese goods early this year – there was an outcry from many US firms reliant on the materials. Carmaker Ford even had to temporarily pause production.
In addition to tightening rules for rare earth exports, China has opened a monopoly investigation into the US tech firm Qualcomm that could stall its acquisition of another chipmaker.
Although Qualcomm is based in the US, a significant portion of its business is concentrated in China.
Beijing has also said it will charge new port fees to ships with ties to the US, including those owned or operated by US firms.
“Some very strange things are happening in China!” Trump wrote in a post on social media on Friday. “They are becoming very hostile.”
The US and China have been in a fragile trade détente since May, when the two sides agreed to drop triple-digit tariffs on each others’ goods that had nearly stopped trade between the two countries.
The move left US tariffs on Chinese goods facing an added 30% levy compared with the start of the year, while US goods entering China face a new 10% tariff.
Officials have held a series of talks since then on matters including TikTok, agricultural purchases, and the trade of rare earths and advanced technology like semiconductors.
The two sides were expected to meet again this month at a summit in South Korea.
China expert Jonathan Czin, a fellow at the Brookings Institution, said Xi’s recent actions were a bid to shape the upcoming talks, noting that the recent rare earths directive does not go into effect immediately.
“He’s looking for ways to seize the initiative,” he said. “The Trump administration is having to play a game of whack-a-mole and deal with these issues as they come up.”
He added that he did not think China was worried about US retaliation in response.
“What China took away from the Liberation Day tariffs and the cycle of escalation followed by de-escalation is that the Chinese side had a higher pain threshold,” he said. “From their perspective, the Trump administration blinked.”
In prior rounds of trade talks, China has pushed for looser US restrictions on semiconductors. It is also interested in securing more stable tariff policies that would make it easier for its businesses to sell into the US.
Xi had previously used as leverage his country’s dominance of rare earths production.
But the export rules unveiled this week target overseas defence manufacturers, making them particularly serious, said Gracelin Baskaran, director of the critical minerals security program at Washington-based Center for Strategic and International Studies.
“Nothing makes America move like targeting our defence industry,” she said. “The US is going to have to negotiate because we have limited options, and in an era of rising geopolitical tension and potential conflict, we need to build our industrial defence base.”
While a Trump-Xi meeting now looks unlikely, she said it was not necessarily completely off the table. Ms Baskaran said there’s still time and room for talks. China’s new rules don’t take effect until December.
“Negotiations are likely imminent,” she said. “Who does them and where they happen will be determined with time.”
Business
Currency watch: Rupee rises 7 paise to 88.72 against dollar; domestic markets and crude oil support gains – The Times of India
The rupee strengthened by 7 paise to close at 88.72 against the US dollar on Friday, buoyed by positive domestic market trends and a broad decline in crude oil prices, PTI reported. Forex traders said the central bank’s intervention also provided support, although a firm US dollar capped sharper gains.The rupee opened at 88.80 and traded in a range of 88.50-88.80 before settling at 88.72, compared with Thursday’s close of 88.79. “We expect the rupee to trade with a positive bias on strength in the domestic markets and broad weakness in crude oil prices. The US government shutdown and rising chances of a Federal Reserve rate cut may further bolster the rupee,” said Anuj Choudhary, Research Analyst, Currency and Commodities, Mirae Asset ShareKhan. He added that importer demand and a strong US dollar could limit upside, with the USD-INR expected to trade between 88.40 and 88.85.Brent crude was trading lower by 0.61 per cent at $64.85 per barrel in futures trading, while the dollar index fell 0.21 per cent to 99.32. Dilip Parmar, Research Analyst at HDFC Securities, said the rupee gained due to foreign inflows into domestic equities and retreat in crude oil prices, noting technical support at 88.50 and resistance at 88.85 for the USD-INR spot pair.Domestic equities mirrored the positive sentiment, with the Sensex rising 328.72 points, or 0.40 per cent, to 82,500.82, and the Nifty climbing 103.55 points, or 0.41 per cent, to 25,285.35. Foreign Institutional Investors were net buyers, acquiring equities worth Rs 459.20 crore on Friday.According to RBI data, India’s forex reserves fell by $276 million to $699.96 billion for the week ended October 3, following a drop of $2.334 billion in the previous week.
The FTSE 100 fell sharply into the close on Friday as US President Donald Trump threatened China with a massive increase in tariffs amid a critical minerals dispute.
The FTSE 100 index closed down 81.93 points, 0.9%, at 9,427.47. It had earlier traded as high as 9,519.96.
The FTSE 250 ended 250.99 points lower, 1.1%, at 21,801.84, and the AIM All-Share fell 7.37 points, 0.9%, to 786.33.
For the week, the FTSE 100 was down 0.7%, the FTSE 250 fell 1.8% and the AIM All-Share was down 1.3%.
In European equities on Friday, the CAC 40 in Paris closed down 1.5%, as did the DAX 40 in Frankfurt.
Stocks in New York were down sharply at the time of the London close. The Dow Jones Industrial Average was down 1.2%, the S&P 500 was 1.6% lower while the Nasdaq Composite declined 2.2%.
Stocks in London had struggled for impetus on Friday before Mr Trump’s latest missive.
Writing on Truth Social, the US president said China is becoming “very hostile” and wants to impose export controls relating to “each and every” element of production relating to rare earths.
Mr Trump called the move “surprising” and said there is “no way” that China should be allowed to hold the world “captive”.
The president said, depending on China’s response, he will be forced to “financially counter the move”.
“One of the policies that we are calculating at this moment is a massive increase of tariffs on Chinese products” coming into the US, he said.
“There are many other countermeasures that are, likewise, under serious consideration,” he added.
Mr Trump said he saw “no reason” to meet Chinese President Xi Jinping.
The comments sparked further falls in the oil price, and bonds, and put pressure on the dollar.
The pound was quoted higher at 1.3338 US dollars at the time of the London equity market close on Friday, compared to 1.3305 dollars on Thursday.
The euro stood at 1.1616 dollars compared to 1.1563 dollars. Against the yen, the dollar was trading at 151.87 yen, lower compared to 153.11 yen.
The yield on the US 10-year Treasury was quoted at 4.07%, narrowed from 4.15% on Thursday. The yield on the US 30-year Treasury stood at 4.66%, down from 4.73%.
Brent oil traded at 63.19 US dollars a barrel on Friday, down sharply from 65.95 dollars late on Thursday.
Shell fell 2.9% while BP shed 2.8%.
But gold, which had been trading back below 4,000 dollars perked up, trading at 4,014.76 dollars an ounce on Friday, still down against 4,020.10 dollars on Thursday.
Mr Trump’s comments added to the uncertainty caused by the ongoing federal government shutdown in the US.
Henry Allen, at Deustche Bank, said the fear is that the longer it lasts, the worse the economic impact will be, noting the Polymarket odds of the shutdown ending before October 15 are down to just 8%.
The shutdown is likely to see a delay to US inflation, retail sales and industrial production figures next week.
On Friday, figures showed showed US consumer confidence was largely unmoved in October, according to preliminary data from the University of Michigan, showing little initial impact from the federal government shutdown.
The index of consumer sentiment ebbed fractionally to 55 points in October, from 55.1 in September. On-year, it tumbled from 70.5.
“Overall, consumers perceive very few changes in the outlook for the economy from last month,” the university said.
“Pocketbook issues like high prices and weakening job prospects remain at the forefront of consumers’ minds. At this time, consumers do not expect meaningful improvement in these factors.
“Meanwhile, interviews reveal little evidence that the ongoing federal government shutdown has moved consumers’ views of the economy thus far.”
Oliver Allen, senior US economist at Pantheon Macroeconomics, said the lack of a “meaningful” fall in the survey’s headline index in October is “encouraging”, given that about half of the report’s responses will have been taken since the government shutdown began.
On London’s FTSE 100, Compass Group rose 0.9% as Bank of America resumed coverage with a “buy” rating.
The broker expects the contract foodservice company to benefit from industry growth tailwinds, and outsized market share gains from first-time outsourcing and competition.
The Bank of America pointed out Compass is gaining market share, not just from self-operated and regional players, but likely also from larger peers.
Sage Group firmed 1.4% as Citi opened a “positive catalyst watch” and reiterated a “buy” rating ahead of full-year results in November.
The broker noted the accountancy software provider’s share price has been knocked by concerns of AI disruption.
But Citi is confident that Sage has the “right levers” to sustain the growth, and potential to accelerate in a better macro set-up.
“AI would remain (a) key topic of debate, at the same time Sage efforts on bringing and commercialising AI use cases should be more visible in 2026,” Citi said.
On the FTSE 250, building materials outfit Ibstock fell 4.0% as it reported “weaker than expected demand” in the UK in recent months.
Ibstock says a more uncertain near-term backdrop for its core construction markets has caused demand to be weaker than expected, hurting Clay and Concrete revenue during the third quarter.
Both sales volumes and adjusted earnings before interest, tax, depreciation and amortisation are expected to be flat in the second half of 2025, showing no improvement from the first half.
The biggest risers on the FTSE 100 were: Admiral, up 58p at 3,388p; Imperial Brands, up 49p at 3,143p; Unilever, up 64p at 4,485p; Sage Group, up 15.5 pence at 1,127.5p; and St James’s Place, up 13.5p at 1,325p.
The biggest fallers on the FTSE 100 were: Entain, down 33.2p at 805p; Mondi, down 30.2p at 824.1p; Glencore, down 11.3p at 345.85p; Rightmove, down 21.8p at 675.8p; and Shell, down 80.5p at 2,696p.
No major events are scheduled for Monday’s global economic diary with financial markets closed in Canada and bond markets shut in the US. Later in the week, GDP and jobs market figures will be released in the UK and inflation data in China.
Next week’s UK corporate calendar has full-year results from housebuilder Bellway, and half-year results from premier Inn owner Whitbread.
Contributed by Alliance News
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