ISLAMABAD:
Pakistan and the International Monetary Fund (IMF) have agreed, in principle, to extend the stalled bailout programme by up to one year and increase the loan size to $8 billion, giving markets the much-needed stability and a breathing space to the new government.
The understanding has been reached between Finance Minister Dr Miftah Ismail and IMF Deputy Managing Director Antoinette Sayeh in Washington, sources told The Express Tribune on Sunday.
Subject to the final modalities, the IMF has agreed that the programme will be extended by another nine months to one year as against the original end-period of September 2022, the sources added.
The size of the loan would be increased from the existing $6 billion to $8 billion – a net addition of $2 billion, a senior government functionary requesting anonymity said. The IMF is expected to issue a statement on Monday (today) in this regard.
The previous PTI-led government and the IMF had signed a 39-month Extended Fund Facility (July 2019 to September 2022) with a total value of $6 billion. However, the previous government failed to fulfil its commitments and the programme remained stalled for most of the time as $3 billion remained undisbursed.
Before taking Pakistan’s case to the IMF Board for approval, Islamabad would have to agree on the budget strategy for the next fiscal year 2022-23, the sources said.
Also, the government of Prime Minister Shehbaz Sharif would have to demonstrate that it would undo some wrong steps taken by the former regime against the commitments that it gave to the IMF Board in January this year.
Pakistan is passing through a phase of political and economic uncertainty and the decision to stay in the IMF programme for longer than original period would bring clarity in economic policies and soothe the rattling markets.
Minister of State for Finance Dr Aisha Ghaus Pasha, outgoing State Bank Governor Dr Reza Baqir, Finance Secretary Hamid Yaqoob Sheikh and Pakistan’s Executive Director to the World Bank Naveed Kamran Baloch also participated in the meeting with the IMF team.
The names of a banker and a former bureaucrat, who has also served in Asian Development Bank, are being considered for Dr Baqir’s replacement. Baqir is going to complete his term on May 4.
To give a final shape to the extended programme, an IMF mission would visit Pakistan likely from May 10, the sources said.
The IMF team will be led by its new mission chief, Nathan Porter.
On the successful conclusion of talks, it was being expected that both the sides would reach a staff-level agreement, a senior finance ministry official said.
The technical staff of Pakistan and the IMF would start engagement from Monday to see the budget position in light of the “irresponsible” decisions made by the previous government.
However, before formally securing the IMF approval for increasing the programme size and the cash limit, the government will have to show that it is sincere in making the needed tough policy decisions.
The sources said the IMF had asked Pakistan to withdraw fuel and electricity subsidies that former premier Imran Khan had announced on February 28 in “total disregard for fiscal prudence” and to “gain the lost support” due to double-digit inflation in the country.
Finance Minister Ismail said last week that the government was giving Rs21 per litre subsidy on petrol and Rs51.54 per litre on high-speed diesel that in the month of April alone would cost the taxpayers Rs68 billion.
These subsidies would have to be withdrawn to revive the programme.
The last PTI government had estimated the cost of fuel subsidies at Rs140 billion for March 1 to June 30 this year. However, so far the government has already given Rs101 billion in two months.
The Petroleum Division has estimated that another Rs192 billion would be needed to pay for the May-June fuel subsidies, according to the energy ministry’s summary for the Economic Coordination Committee (ECC).
The sources said that it has also been agreed between both the sides that the IMF staff would look at the actual fiscal numbers of the ongoing fiscal year as 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 budget surplus to the tune of Rs25 billion. However, the finance ministry has now estimated that there could be a primary deficit of Rs1.3 trillion by the end of June, according to Miftah.
The IMF wanted Pakistan to minimise the deviation against the earlier agreed limit of Rs25 billion surplus, the sources said.
The global lender also desired that the new government should try to make up for some of the subsidy and deviation, they added.
They said during discussions with the IMF, the issue of Pakistan’s debt sustainability, curtailing imports, growing current account deficit and increasing foreign exchange reserves were also discussed.
On the sidelines, Miftah also held meetings with the WB managing director.
It was also attended by WB Vice President Hartwig Schafer and Naveed Kamran Baloch.
The two sides discussed the possibility of unlocking about $1.8 billion WB lending that too had stuck up because of either lack of fulfillment of actions promised by the last government or because of the bureaucratic snags, the sources added.