By Sardar Khan Niazi
Pakistan and the International Monetary Fund (IMF) have reached an agreement after 10 days of tough parleys, unlocking over a $1 billion loan tranche under Extended Fund Facility (EFF) that remained suspended for the last five months.
A meeting took place between Prime Minister Shehbaz Sharif and the IMF team, where the mission informed the premier about the agreement. The prime minister, who interacted with the Fund officials in Islamabad via video link from Lahore, approved the agreement.
The final round of talks with the IMF ended after ten days of extensive discussions on the power, fiscal, and monetary sides. The IMF mission, led by Nathan Porter, held discussions from January 31-February 9 to finalize the action plan under the ninth review of the IMF bailout program.
The dialogue concluded positively and there is no obscurity anymore. After a few meetings, the IMF Executive Board would give its approval, and Pakistan would receive the next tranche of $1.2 billion or 894 million
Under the policy package, the government would need to implement tax measures to the tune of 170 billion rupees and would try not to impose any tax that will further burden the common person. The taxes need to be collected in this fiscal year.
The government would implement reforms in the power sector minimizing the untargeted subsidies and curbing the circular debt in the gas and petroleum sector. This is one of the understandings in agreement.
Federal Minister for Finance and Revenue Ishaq Dar says the commitment made with the IMF on Petroleum Development Levy (PDL) has been achieved. Rs50 PDL on petrol has already been realized. Meanwhile, out of the Rs50 PDL on diesel, Rs40 has already been implemented, while the remaining amount would be added in the coming months.
The International Monetary Fund (IMF) has welcomed the Prime Minister’s commitment to implement policies needed to safeguard macroeconomic stability and thanked the authorities for the constructive discussions.
Timely and decisive implementation of policies along with resolute financial support from official partners is critical for Pakistan to regain macroeconomic stability successfully and advance its sustainable development.
However, virtual discussions will continue to finalize the implementation details of policies, implying that an agreement to revive the program through a staff-level agreement may still take some time as Pakistan moves to execute the prior actions.
Considerable progress was made during the mission on policy measures to address domestic and external imbalances.
Key priorities include strengthening the fiscal position with permanent revenue measures and a reduction in untargeted subsidies. Scaling up social protection to help the most vulnerable and those affected by the floods.
Allowing the exchange rate to be market determined to eliminate the foreign exchange shortage gradually and enhance energy provision by preventing further accumulation of circular debt and ensuring the viability of the energy sector is also included.
The government would impose additional taxation measures to the tune of Rs170 billion under the policies agreed with the International Monetary Fund (IMF).
Pakistan has received the draft of the Memorandum of Economic and Financial Policies (MEFP) from the IMF as per their commitment. On Monday, Pakistan would hold a virtual meeting with the IMF on MEFP.
The MEFP is a critical document that outlines all of the conditions, steps, and policy measures upon which the two parties declare the staff-level agreement.
Once the draft MEFP is shared, the two sides discuss the policy measures outlined in the document. Once these are finalized, a staff-level agreement is signed, which is then forwarded to the Fund’s Executive Board for approval.
Pakistan remains optimistic that the commitments made by the friendly countries would materialize soon as well, and the pressure on foreign exchange reserves would subside.