Pakistan and the International Monetary Fund (IMF) have agreed, in principle, to extend the stalled bailout program for up to a year and increase the loan amount to $8 billion, giving markets the stability they need. much needed and a respite for the new government.
The deal was struck between Finance Minister Dr Miftah Ismail and IMF Deputy Managing Director Antoinette Sayeh in Washington, sources told The Express Tribune on Sunday.
Subject to final terms, the IMF has agreed that the program will be extended by an additional nine months to one year from the original end period of September 2022, the sources added.
The loan amount would increase from the existing $6 billion to $8 billion – a net addition of $2 billion, a senior government official said on condition of anonymity. The IMF is expected to issue a statement on Monday (today) in this regard.
The previous government led by the PTI and the IMF signed a 39-month Extended Financing Facility (July 2019 to September 2022) with a total value of $6 billion. However, the previous government failed to meet its commitments and the program remained stalled most of the time, with $3 billion remaining undisbursed.
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Before submitting Pakistan’s case to the IMF board for approval, Islamabad should agree on the fiscal strategy for the next financial year 2022-23, the sources said.
In addition, Prime Minister Shehbaz Sharif’s government is expected to demonstrate that it would reverse some erroneous measures taken by the former regime against commitments it made before the IMF board in January this year.
Pakistan is going through a phase of political and economic uncertainty and the decision to stay in the IMF program longer than the initial period would bring clarity in economic policies and ease troubled markets.
Minister of State for Finance Dr Aisha Ghaus Pasha, outgoing State Bank Governor Dr Reza Baqir, Secretary of Finance Hamid Yaqoob Sheikh and Executive Director of Pakistan at the World Bank Naveed Kamran Baloch also participated in the meeting with the IMF team.
The names of a banker and a former bureaucrat Shahid Mahmood are being considered to replace Dr Baqir. Baqir will end his term on May 4.
To give final shape to the extended program, an IMF mission is likely to visit Pakistan from May 10, the sources said.
The IMF team will be led by its new mission chief, Nathan Porter.
Once the talks were successfully concluded, it was expected that the two sides would reach a personnel agreement, a senior finance ministry official said.
Technical staff from Pakistan and the IMF would start the engagement from Monday to see the fiscal situation in light of the “irresponsible” decisions made by the previous government.
However, before gaining formal IMF approval to increase the program size and cash limit, the government will need to show that it is sincere in making the tough policy decisions needed.
The sources said the IMF had asked Pakistan to withdraw fuel and electricity subsidies that former Prime Minister Imran Khan announced on February 28 in “utter disregard of fiscal prudence” and to “win the support lost” due to double-digit inflation in the country.
Finance Minister Ismail said last week that the government was providing a subsidy of Rs 21 per liter of petrol and Rs 51.54 per liter of high-speed diesel which in April alone would cost taxpayers 68 billion rupees.
These subsidies should be removed to revive the program.
The last PTI government estimated the cost of fuel subsidies at Rs 140 billion for the period March 1 to June 30 this year. However, so far the government has already donated 101 billion rupees in two months.
Read also : Government ready to cut fuel subsidies, Miftah tells IMF
The Petroleum Division estimated that an additional Rs 192 billion would be needed to pay fuel subsidies from May to June, according to the Energy Ministry’s summary for the Economic Coordinating Committee (ECC).
The sources said it was also agreed between the two parties that IMF staff would review the actual budget figures for the current fiscal year against the targets agreed with the global lender in December 2021.
Former finance minister Shaukat Tarin had agreed with the IMF that he would ensure a primary fiscal surplus of up to 25 billion rupees. However, the Ministry of Finance has now estimated that there could be a primary deficit of 1.3 trillion rupees by the end of June, according to Miftah.
The IMF wanted Pakistan to minimize the deviation from the previously agreed limit of 25 billion rupees surplus, the sources said.
The global lender also wanted the new government to try to offset some of the subsidy and the gap, they added.
They said that during discussions with the IMF, the issue of Pakistan’s debt sustainability, reduction of imports, increase in current account deficit and increase in foreign exchange reserves were also discussed.
On the sidelines, Miftah also had talks with the director general of the WB.
WB Vice President Hartwig Schafer and Naveed Kamran Baloch also attended.
The two sides discussed the possibility of releasing about $1.8 billion in World Bank loans that had also been blocked due to either non-compliance with actions promised by the last government or bureaucratic problems, added the sources.