Pakistan joined International Monetary Fund on 11th July 1950 and secured loans on twenty-one occasions, the last being in 2019.
IMF gave loans based on conditions such as the hike in energy tariffs, removal of energy subsidy, increase in taxation, privatization of public entities, and fiscal policies. IMF officials began formal negotiations with the Pakistan government officials on February 01, 2023 to discuss the plan to rescue the economy including the installment of $1.1 billion in loans from a $6.5 billion bailout that was designed to avert the economic meltdown in 2019. The staff-level negotiations continued in February and a Memorandum of Economic and Fiscal Policies(MEFP) was shared due to rich the government pushing the mini-budget of Rs 170 billion and removal of electric subsidies and increase in Petroleum prices as agreed-upon steps. However, it has been reported that IMF changed its interpretation of prior actions ahead of reaching a staff-level agreement. The four action plan on the agenda item includes an increase in the SBP interest rates, exchange rate movements, and continuation of Rs. 3.39 per unit financing cost surcharge on electric consumers for the coming year in the Finance Bill. The government in a desperate attempt to seek a $ 1.1 billion installment surrendered to the IMF demand and a surcharge of Rs. 3.32 per unit on electric consumers across the country has been decided to be levied from 1st July 2023 as decided in the meeting of Economic Co-Ordination Committee held on 1st March. It is a fact that Pakistan is facing one of the worst economic crises in its history with poverty, inflation, and unemployment soaring and adversely affecting millions of people’s health, food, and an adequate standard of living, as more than a quarter of Pakistan’s population, is living below the poverty line, 21 percent of the population is undernourished, 44 percent of the children under the age of 5 had stunted growth and more than 20 percent of the population did not have access to electricity. The bailout package would ease the crippling shortage of foreign exchange reserves and unlock funding from other multilateral and bilateral donors.
No doubt the government has secured some funding from China and expects inflow from Saudi Arabia and UAE, but the IMF has estimated a financial gap of $ 7 billion for the current fiscal year whereas the Pakistan Government projection is $ 5 billion due to recent floods and heaving rains besides increase in oil and gas prices due Russia-Ukraine war and increase in the global food prices. The implementation of prior actions (out of which one relating to increasing in electric prices has been approved by Pakistan) will be a test of the government while dealing with the IMF as its implementation will have far-reaching implications. The Pakistan government officials have termed it as “Pakistan denuclearisation” and punishing the nation for nuclear tests. It may be highlighted that the prior actions are to be completed before the Executive Board Meeting of the IMF for approval of quarterly review but it has now been linked to the staff-level agreement.
All these prior actions and the recent stance of the IMF towards Pakistan indicate a trust deficit and the coming days will only unfold how this trust is restored and how quickly the staff-level agreement is signed and the bailout package released. The agreement if approved in the coming days will provide a sigh of relief to the government and the worsening economy. Till such time, the government is required to accelerate its efforts to seek funding from friendly countries and multilateral and bilateral donors in order to avert any future and imminent economic mishap.
The writer is Customs, Tariff and Trade Expert