ISLAMABAD: Following Prime Minister Shehbaz Sharif’s approval, Pakistan sent a letter to the International Monetary Fund (IMF) requesting the lender of last resort to send its review mission to the federal capital next week.
“The government has concluded that there is no other option but to revive the IMF program immediately, so we have decided to invite the IMF,” the source told reporters Thursday night. Confirmed from a select group of
This decision was taken during the high-powered meeting of the economic team chaired by Prime Minister Shehbaz for the second consecutive day.
A day earlier, Prime Minister Shehbaz on strict IMF prescriptions to break the deadlock and release a $1 billion tranche under the $7 billion Expanded Fund Facility (EFF) to complete the pending ninth review. Approved for implementation.
Sources confirmed that the finance secretary has sent a written request to the fund to send its review mission and is hopeful that the lender will respond positively.
It was also learned that the economic team led by the Prime Minister had finalized a macroeconomic and financial framework and IMF related conditions. It will be implemented after agreement with the Fund Mission at the negotiating table.
A senior official said there is concern among policymakers in the Q-block (finance ministry) that if Islamabad imposes additional tax measures, hikes in electricity and gas prices, and allows the exchange rate to depreciate. What will happen if F’s prescriptions are implemented? If fund staff labeled them as inadequate operations.
Therefore, the authorities decided to first agree with the IMF on all the attached conditions and then implement them.
‘No other option’
There is a perception among policymakers that Islamabad has no choice but to revive the stalled IMF program on a short-term basis to break the deadlock and avoid a full-blown balance of payments crisis. .
The government has finalized the macroeconomic and fiscal framework for the current financial year, based on which the pending ninth review will be completed.
If both parties are unable to finalize the ninth review by the first week of the following month, the ninth and tenth reviews may be combined. But at this point, Pakistani authorities will make a last-ditch effort to complete the pending review.
After that, the two sides could begin negotiations to complete the next review as soon as the next tranche is approved by the IMF’s Executive Board.
Government’s plan to appease the IMF
Under the revised macroeconomic and fiscal framework, the government wants to convince the IMF to lower the Petroleum Development Levy (PDL) target from Rs 855 billion to Rs 550 billion for the current fiscal year. lead to
FBR’s tax collection target of Rs 7470 billion will remain intact.
It should be noted that in December 2022, the FBR faced a shortfall of Rs 225 billion, but as per the set target of the IMF, the first half of the current fiscal year (July to December) is Rs 82 billion in achieving the target. was lacking. Year 2022-23.
The mini-budget will be introduced through the promulgation of a Presidential Ordinance.
According to the post-agreement deadline, the government wants it to come into force on February 1, 2023. This is because of the benefit of additional tax collection in the remaining five months (February to June) of the current financial year.
The FBR also hopes that important tax injunctions from the courts will be cleared by March 2023, which will help achieve the desired tax collection target.
However, according to an internal review conducted by the Board of Revenue, the tax machinery may face a shortfall of Rs 170 billion due to import compression, thus reducing the collection to Rs 7,300 billion from Rs 7,470 billion. can go
Electricity and gas prices will be increased, especially electricity rates. The IMF will also press hard to eliminate multiple exchange rates and allow the rupee to depreciate on the economic front in line with realistic fundamentals.
After the agreement, rising inflation will be a real challenge for the Pakistan Democratic Movement-led government. Secondly, they will face political consequences as a result of implementing the tough decisions recommended by the Fund.
But at a time when the risk of default is looming over the country, economic managers have no other solution available.
