IMF has proposed new “prior actions” before it signs the staff-level agreement with Pakistan and releases the dollars desperately needed to support our dwindling foreign currency reserves and support the rupee, just when we thought that everything with the lender had finally been resolved for the resumption of its stalled bailout funds.
The upcoming seventh and eighth performance reviews of the programme are included in the Memorandum of Economic and Fiscal Policies that Pakistani authorities received from the lender the other day. This will enable Pakistan to collect up to $1.9 billion, but only after the government puts in a little “extra” effort to merit it. As a result, the agreement’s acceptance and the subsequent delivery of the money have been postponed until late July or early August.
It is likely that this will cause a delay in the “unlocking” of additional committed global and bilateral aid and briefly depress market confidence.
In fact, the majority of the new loan requirements are related to the reforms the government has previously agreed to with the Fund. The lender, however, demands that they be formalised and given legal protection.
For instance, to help Islamabad satisfy the requirement of keeping the consolidated fiscal deficit for the following year at roughly 4.9 percent of GDP, it has requested that the government sign an MoU with the provinces to jointly produce a cash surplus of Rs750 billion. Before finalising the agreement, the Fund requests that the government submit its proposal for a petroleum development levy of up to Rs50 per litre on fuel to the cabinet for approval in order to fulfil an increased PDL target of Rs855 billion.
The IMF also demands the implementation of a number of structural benchmarks, including an increase in electricity tariffs, before the staff-level agreement is finalised.
The “new” call for total deregulation of the gasoline pricing system, allowing the market to set retail prices, may still be a contentious matter.
Given the income losses of roughly Rs200 billion caused by the previous administration’s politically motivated move to slash prices and freeze them for four months, the situation is understandable.
Most of these earlier activities should be put into practise within a week.
The government has already given up a lot to resurrect the programme by implementing the largest fiscal adjustment in a single year, totaling over Rs1.7 trillion or 2.2 percent of GDP, primarily by raising taxes on current taxpayers, both businesses and individuals, at the expense of the political capital of the ruling coalition, particularly the PML-N.
Given that the delay will put additional strain on the fiscal and external accounts and harm market sentiment, it is unjust of the IMF to postpone approval and the distribution of its funds for another five to six weeks.
Therefore, in order to soothe the restless markets, it is imperative that the Fund change its mind and release the funds as soon as possible.
The upcoming seventh and eighth performance reviews of the programme are included in the Memorandum of Economic and Fiscal Policies that Pakistani authorities received from the lender the other day