Ailing Pakistan and the International Monetary Fund (IMF) have agreed to extend the stalled bailout for up to a year and increase the loan size to $8 billion, giving the new government led by Prime Minister Shehbaz Sharif some breathing room. That reports a media report on Sunday.
The deal was reached after crucial talks between Pakistan’s newly appointed finance minister Miftah Ismail and IMF deputy director Antoinette Sayeh in Washington, The Express Tribune reported, citing sources.
Subject to final terms, the International Monetary Fund has agreed to extend the program for a further nine months to one year from its original end date of September 2022, while increasing the loan size from the existing 6 dollars. billion to $8 billion, the paper reported, citing sources.
The IMF is expected to issue a statement on the development on Monday.
State Finance Minister Dr Aisha Ghaus Pasha, outgoing Governor of the State Bank Dr Reza Baqir, Finance Minister Hamid Yaqoob Sheikh and Pakistani Executive Director of the World Bank Naveed Kamran Baloch also attended the meeting with the IMF team.
Ismail was in Washington to renegotiate the $6 billion rescue package blocked by Imran Khan’s previous regime.
The Pakistani government Tehreek-e-Insaf and the IMF had signed a 39-month Extended Fund Facility (July 2019 to September 2022) worth $6 billion in total. However, the previous administration failed to deliver on its commitments and the program remained stalled for most of the time as $3 billion went unpaid.
Before submitting Pakistan’s case to the IMF board for approval, Islamabad should agree on the fiscal strategy for the next fiscal year 2022-23, the sources said.
Also, Prime Minister Sharif’s government would have to demonstrate that it would reverse some wrongful moves by the former regime against the commitments it made to the IMF board in January this year.
Poor Pakistan is going through a phase of political and economic uncertainty, and the decision to stay in the IMF program longer than the original period would bring clarity to economic policy and calm shaky markets.
The fund’s release would be a welcome antidote to the country’s declining economy, which faces plummeting forex reserves ($10.8 billion) and a current account deficit.
To finalize the expanded 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.
After the successful conclusion of the talks, both sides were expected to reach a staff-level agreement, a senior finance ministry official said.
Pakistan’s technical staff and the IMF were said to make a commitment from Monday to review the fiscal position in light of the previous government’s “irresponsible” decisions.
However, before the government gets formal IMF approval to increase the program size and money limit, the government will need to demonstrate its sincerity in making the necessary hard policy decisions.
The sources said the IMF had asked Pakistan to withdraw the fuel and electricity subsidies that former Prime Minister Khan announced on Feb. 28 in “absolute disregard for fiscal prudence” and to “gain the lost support” over double-digit inflation in the country. country.
Finance Minister Ismail said last week that the government was subsidizing Rs 21 per liter on petrol and Rs 51.54 per liter on high-speed diesel, which would cost taxpayers Rs 68 billion in the month of April alone. These grants would have to be withdrawn in order to revive the program.
The newly formed Shehbaz Sharif government that took over this month is also coping with rising inflation and an economy that is simply refusing to recover.
In its latest report on Pakistan, the IMF forecasts annual growth of 4 percent, against estimates by the country’s central bank of around 4.8 percent. On Wednesday, Ismail said in his first press conference when the country’s finance minister said the IMF had submitted a list of demands for the revival of the rescue package to be implemented.
These include withdrawing the fuel subsidy, abolishing the amnesty scheme, raising the electricity tariff and imposing additional tax measures.
The fuel and power subsidies were carried out by Khan days before he was removed from power.
A rollback would be a tough task for the current government, especially at a time when Pakistani consumer inflation stood at 12.7 percent in March.
In Washington, Ismail also met with the director of the World Bank and the two sides discussed the possibility of releasing approximately $1.8 billion in loans to the WB, which had also been stalled due to the failure to meet the commitments imposed by the previous government promised actions or because of the bureaucratic snags, the sources added.
After his meetings in Washington, Ismail will travel to London to meet Nawaz Sharif, the leader of the Pakistan Muslim League-Nawaz (PML-N).
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