ISLAMABAD - The government has shelved plans to privatise its power supply companies and will miss deadlines to sell other loss-making state firms, reneging on promises it made to the IMF in return for a $6.7 billion bailout three years ago. Two government officials with direct knowledge of the situation said International Monetary Fund officials who met Pakistani officials in Dubai this week to review progress on reforms were angered by the backtracking.

But the IMF still agreed to release the next $497 million tranche of that loan, leaving a further $1.1 billion left to be released. Announcing that its team in Dubai had agreed that the tranche should be disbursed, subject to approval by the Fund’s executive board, the IMF went on to lament Pakistan’s slow progress in some areas. “While many structural benchmarks have been met, measures pertaining to the energy sector reform and restructuring of loss-making public enterprises are yet to be implemented,” the IMF said in a statement.

For all the IMF’s frustration over the privatisation delays, the government has pushed ahead on other reforms, Pakistani officials said.  “The energy sector reforms are on track and we have been working consistently,” Finance Minister Ishaq Dar told a joint news conference with IMF mission chief Harald Finger when asked about the decision to shelve the privatisation of power supply companies. “It was embarrassing and brutal,” a senior Pakistani official present at the meeting in Dubai, told Reuters, describing the IMF’s response when Finger was told that the government had decided not to sell nine power distribution companies because of fear of labour unrest.

“It was nothing less than a dressing down. If the IMF still doesn’t penalise us, then all I can say is, ‘We’re very lucky’,” the official said.

The other source, a senior finance ministry official who was also in Dubai, confirmed the account. The ministry did not respond to calls seeking comment.A spokesman for the IMF said earlier the Fund would not comment during a mission review. During the news conference, Finger did not address alleged tensions at the Dubai meeting, though he did acknowledge “complexities” in the process.

Officials told the IMF that taking on the power companies’ 400,000 unionised employees was fraught with risk, and that instead the government would bring in independent boards of directors to improve management. Pakistan will also miss a deadline to sell Pakistan Steel Mills by March, the Pakistani officials said.  Problems dealing with the IMF could nudge the government toward other sources of help, like ally China, which plans to invest $46 billion in a China-Pakistan Economic Corridor (CPEC), and is also leading a new Asian Infrastructure Investment Bank.

“If money from the CPEC starts coming in, it allows the government to show that something is happening and that they don’t need the IMF,” said Akbar Zaidi, a South Asian expert at Columbia University. “The IMF welcomed the authorities’ strong programme performance in the second quarter of FY2015/16. All end-December 2015 quantitative performance criteria, including the budget deficit target and the floor on the SBP’s net international reserves, have been met,” IMF’s mission chief for Pakistan, Harald Finger, said in a statement.

He further said Pakistan had also met indicative targets on social spending under the Benazir Income Support Programme (BISP) and power sector arrears had also been met. The IMF has shown satisfaction over the economic situation of Pakistan, which would pave way for its executive board to approve $497 million within next couple of months. Pakistan had so far received $5 billion from the IMF under a 36-month programme supported by an Extended Fund Facility (EFF) arrangement of $6.64 billion approved in 2013.

Finger said in the statement, “Economic activity remains robust. Although a weak cotton harvest, declining exports, and a more challenging external environment are weighing on growth prospects, real GDP growth is expected to reach 4.5 percent in FY2015/16, helped by lower oil prices, planned improvements in the energy supply, investment related to the China Pakistan Economic Corridor (CPEC), buoyant construction activity and acceleration of credit growth. Headline consumer price inflation has begun to rise as the effects of the past declines in commodity prices fade and will likely reach around 4.5 percent by the end of FY2015/16.”

Nevertheless, inflation is expected to remain well anchored by continued prudent monetary policy. Gross international reserves reached $15.9 billion in December 2015, up from $15.2 billion at end-September 2015 and covering close to four months of prospective imports. “The authorities’ programme continues to firm up macroeconomic stability with stronger public finances and foreign exchange reserve buffers and expanded protection of the most vulnerable under the Benazir Income Support Programme (BISP). Further consolidation of these gains and strengthening the long-term resilience of the economy is the main priority in the period ahead. To this end, advancing the energy sector reform, setting in motion competitiveness-enhancing improvements in the business climate, continuing to expand the tax net and ending losses in public enterprises will be critical. Completing these reforms will help set Pakistan on a permanently higher growth trajectory and achieve the country’s broader economic objectives,” he added.

Ishaq Dar, while addressing the joint conference with Harald Finger in Dubai, said Pakistan for the first time successfully completed 10th Review with IMF as previously we were known as two-tranche country. We are working to achieve 5% GDP growth during the ongoing financial year for Pakistan is on the path of economic trajectory,” he added.  “The China-Pakistan Economic Corridor (CPEC) will contribute a lot to the economic development of the country,” he remarked. Talking about the inflation rate, Dar said it had come down to the 12-year lowest level of 2.1 percent during the first half (July-December) of the ongoing fiscal year. He further said the country’s foreign exchange reserves had surged to $20.27 billion, which were enough for four months of imports.

Explaining another economic achievement, the finance minister said the incumbent government had brought down the budget deficit to 5.37 percent of the GDP during 2014-2015 from 8.8 percent of the GDP when the incumbent government took charge. The government would further reduce it to 4.3 percent of the GDP during the ongoing fiscal year as it remained within the target during the first half of the year, he added. Dar went on saying the government had not slashed the public sector development programme to control its budget deficit, but had enhanced it up to Rs 700 billion from Rs 300 billion.

He said the government was working on different energy projects and loadshedding would come to an end in 2018 by adding 10,000MW electricity to the system. He further said overall law and order situation in the country, including Karachi and Balochistan, had improved. About the PIA issue, the finance minister said some elements were misleading the masses about the PIA privatisation. He pointed out the fleet of PIA had increased to 40 with the induction of new jets from 18. No employee of the PIA would be sacked, he assured.