Cash-strapped Pakistan and the International Monetary Fund (IMF) have agreed to extend the stalled bailout for another year and increase the loan amount to $8 billion, giving the new government some breathing room. by Prime Minister Shehbaz Sharif, a media report said on Sunday.
The deal was reached after crucial talks between Pakistan’s new Finance Minister Miftah Ismail and IMF Deputy Managing Director Antoinette Sayeh in Washington, The Express Tribune reported, citing sources.
Subject to final terms, the International Monetary Fund has agreed that the program will be extended by an additional nine months to one year from the end of the initial term in September 2022, while the loan amount will be increased from the current amount. from $6. billion to $8 billion, the newspaper reports, citing sources.
The IMF is expected to issue a development statement on Monday.
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.
Ismail was in Washington to renegotiate the $6 billion bailout that had been blocked by the former Imran Khan regime.
The Pakistani government Tehreek-e-Insaf and the IMF had signed a 39-month extended financing facility (July 2019 to September 2022) worth a total 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.
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 Sharif’s government would have to demonstrate that it would reverse some erroneous measures taken by the former regime against the commitments it made before the IMF board in January this year.
Cash-strapped Pakistan is going through a phase of political and economic uncertainty and the decision to remain in the IMF program for longer than the initial period would bring clarity in economic policies and calm turbulent markets.
The release of this fund would be a welcome antidote to the country’s sagging economy which is facing falling foreign exchange reserves (10.8 billion dollars) and a current account deficit crisis.
To give final shape to the extended program, an IMF mission is likely to visit Pakistan from May 10, the sources said, adding that 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 Khan announced on February 28 in “utter disregard of fiscal prudence” and “win the lost support “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 on petrol and Rs 51.54 per liter on high-speed diesel which, in April alone, would cost taxpayers 68 billion rupees. These subsidies should be withdrawn to revive the program.
The new Shehbaz Sharif government that took power this month must also contend with soaring inflation and an economy that simply refuses to rebound.
In its latest report on Pakistan, the IMF predicted annual growth of 4%, against estimates by the country’s central bank of around 4.8%. On Wednesday, Ismail, in his first press conference as the country’s finance minister, said the IMF had presented a list of demands for the bailout stimulus to be implemented.
These include the withdrawal of fuel subsidies, the abolition of the tax amnesty regime, the increase in electricity tariffs and the imposition of additional tax measures.
The fuel and electricity subsidies were put in place by Khan days before he was ousted from power.
Rolling back would be a daunting task for the current government, especially at a time when consumer price inflation in Pakistan reached 12.7% for the month of March.
In Washington, Ismail also met with the Managing Director of the World Bank and the two sides discussed the possibility of releasing approximately $1.8 billion in World Bank loans that had also been blocked due to either non-compliance actions promised by the last government were bureaucratic hiccups, the sources added.
After his meetings in Washington, Ismail will travel to London to meet Pakistan Muslim League-Nawaz (PML-N) supremo Nawaz Sharif.
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)