ISLAMABAD: In view of the expiring deadline, only two options have emerged i.e. meet the ninth review and release $1.2 billion from the IMF or a fresh stand of $2.5 billion for a short period of six months till the end. Make By Arrangement (SBA). of December 2023.
If the new bailout package under the SBA is implemented, Pakistan can fully utilize its $2.5 billion quota, which will expire if the fund completes the ninth review and ends June 2023.
The IMF has already rejected Pakistan’s demand to extend the timeframe of the ongoing Extended Fund Facility (EFF) beyond June 2023. Pakistan also requested the IMF to increase the size of the fresh SBA to $3.5 billion, but the IMF did not agree. . However, arrangements are currently under consideration to accept one of the two options.
In a related development, IMF mission chief Nathan Porter said, “Over the past few days, Pakistani authorities have taken decisive steps to further align policies with the IMF-supported economic reform program. These include parliamentary approval of a budget that broadens the tax base while opening up space for higher social and development spending, as well as improving the functioning of the foreign exchange market and managing inflation and the balance of payments. Measures include tightening fiscal policy to ease the pressure, which particularly affects the most vulnerable. The IMF team continues to engage with the Pakistani authorities with the aim of A financial assistance agreement is to be reached soon.
After that statement, the first option to restore the current $6.7 billion Expansionary Fund facility program has been reduced. Now Pakistan and the IMF have to find another option to implement the new transitional program under a standby arrangement for the next six months to avoid a balance of payments crisis.
If the IMF opts for a new SBA program for a period of six to seven months by December 23 or January 24, it will help Islamabad to meet the political transition brought about by the general elections and Whoever wins the election will have one or two. -month to strike a new three-year bailout package. Pakistan has also requested disbursement of a front-loaded $1 billion tranche while the remaining $1.5 billion can be released through two reviews under the SBA programme.
Prime Minister Shehbaz Sharif contacted the MD of the IMF on Tuesday morning at 4.30 am. Now only two options are under consideration i.e. to meet the ninth review and release the $1.2 billion tranche, then the remaining amount will be gone. Another option is to create a new SBA program for the next six-month period with a front-loaded disbursement provision of $1 billion,” a senior government official told a select group of reporters here on Tuesday.
In either option, Pakistan will ask the IMF to implement the Staff Level Agreement (SLA) by June 30, 2023. Islamabad can then wait a few more days for the IMF Executive Board meeting in July 2023 to approve new standby arrangements, so Pakistan’s quota will be fully protected. A senior official said that Pakistan had presented an idea to the IMF to set up a new standby arrangement to provide a front-loaded disbursement of $1 billion for the next six to seven months as Islamabad All conditions of MF have been fulfilled. “The staff level agreement will have to be terminated by the end of June 2023 as Islamabad has implemented all the conditions,” he said.
On electricity rates, the IMF has asked Pakistan to increase electricity rates by Rs 8.25 per unit in the next financial year. The National Electric Power Regulatory Authority (NEPRA) is hearing the applications of various DISCOs and so far the applications of seven DISCOs have been heard while the applications of the remaining three DISCOs will be heard soon.
Electricity rates were expected to increase in the coming financial year. The average electricity tariff stood at Rs 24.82 per unit while the tariff for domestic consumers was Rs 20.73 per unit, industrial consumers Rs 25.42 per unit and commercial consumers Rs 29.55 per unit.
The official said the government has met IMF demands for additional tax hikes of Rs 215 billion and expenditure cuts of Rs 85 billion, hence the fiscal adjustment of Rs 300 billion in the revised budget for 2023-24. went The policy rate was hiked by 100 basis points to 21-22 percent as against the IMF’s demand of 200 basis points.
The official believed that Pakistan suffered massive losses due to the IMF’s reluctance to sign the SLA. He said the country returned $5.5 billion to commercial banks, of which $2 to 3 billion could have been easily refinanced from UAE-based commercial banks if the SLA had been terminated in time.
Finance Minister Ishaq Dar had to look the other way because of the devaluation as he was known to keep the exchange rate stable. Things are not going to be easy to achieve any progress, so tough talks are going on between Pakistan and IMF negotiators to get one of the two available options on the table. Pakistan has also asked China to increase the currency swap agreement from RMB 30 billion to RMB 40 billion, which will be finalized in the next financial year 2023-24 starting July 1, 2023.
In another related but important development, Pakistan is also expecting an additional deposit of $1 billion from the UAE in the next few days. Pakistan has also requested the provision of additional reserves of $2 billion from Saudi Arabia after which the two sides have exchanged draft agreements in this regard.
