Cash-strapped Pakistan IMF agrees to extend stalled bailout package, increase loan size to $8bn

ISLAMABAD: Cash-strapped Pakistan and the IMF have agreed to extend the stalled rescue package for up to a year and increase the size of the loan to $8 billion, giving the new government led by Prime Minister Shehbaz Sharif some breathing room, it said. a media report. on Sunday.
The deal was reached after crucial talks between Pakistan’s newly appointed Finance Minister Miftah Ismail and IMF Deputy Managing Director Antoinette Sayeh in Washington, The Express Tribune reported, citing sources.
Subject to final modalities, the International Monetary Fund (IMF) has agreed that the program will be extended for a further nine months to a year compared to the original final period of September 2022, while the loan size would be increased from the existing $ 6 billion to $8 billion, the newspaper reported, citing sources.
The IMF is expected to issue a statement Monday on the development.
Minister of State for Finance Dr. Aisha Ghaus Pasha, Outgoing State Bank Governor Dr. Reza Baqir, Finance Secretary Hamid Yaqoob Sheikh, and Pakistan World Bank Executive Director Naveed Kamran Baloch also participated in the meeting with the IMF team.
Ismail was in Washington to renegotiate the $6 billion rescue package that was stalled by the previous Imran Khan regime.
The government of Pakistan Tehreek-e-Insaf and the IMF had signed a 39-month Extended Fund Facility (July 2019 to September 2022) with a total value of $6 billion. However, the previous government did not fulfill its commitments and the program remained stalled most of the time, with $3 billion remaining undisbursed.
Before taking the Pakistan case to the IMF Board for approval, Islamabad would have to agree on the budget strategy for the upcoming fiscal year 2022-23, the sources said.
In addition, Prime Minister Sharif’s government would have to show that it would undo some missteps by the previous regime against the commitments it made to the IMF Board in January this year.
Cash-strapped Pakistan is going through a phase of political and economic uncertainty and a decision to stay in the IMF program longer than the original period would bring clarity on economic policies and calm choppy markets.
The release of the fund would be a welcome antidote to the country’s declining economy that is facing collapsing foreign exchange reserves ($10.8bn) and a current account deficit crisis.
To put the extended program into final shape, an IMF mission would visit Pakistan probably from May 10, the sources said, adding that the IMF team will be led by its new chief of mission, Nathan Porter.
Following the successful conclusion of the talks, both sides were expected to reach an agreement at the personnel level, a senior Finance Ministry official said.
Pakistan staff and the IMF are due to start engaging from Monday to view the budget’s position in light of “irresponsible” decisions made by the previous government.
However, before formally obtaining IMF approval to increase the size of the program and the cash limit, the government will need to show that it is sincere in making the necessary difficult policy decisions.
The sources said that the IMF had asked Pakistan to withdraw the fuel and electricity subsidies that former Prime Minister Khan had announced on February 28 in “complete disregard for fiscal prudence” and to “gain lost support” due to the double-digit inflation in the country.
Finance Minister Ismail said last week that the government was providing a subsidy of Rs 21 per liter for petrol and Rs 51.54 per liter for high-speed diesel that in the month of April alone would cost taxpayers Rs 68,000. million rupees. These subsidies would have to be withdrawn to reactivate the program.
Shehbaz Sharif’s newly formed government that took office this month also has to contend with spiraling inflation and an economy that simply refuses to recover.
In its latest report on Pakistan, the IMF has forecast annual growth of 4 percent, against estimates by the country’s central bank of about 4.8 percent.
On Wednesday, Ismail in his first press conference as the country’s finance minister said the IMF had put forward a list of demands for the revival of the rescue package to be implemented.
These include the removal of the fuel subsidy, the prohibition of the fiscal amnesty scheme, the increase in the electricity rate and the imposition of additional fiscal measures.
Khan implemented the fuel and energy subsidies days before he was ousted from power.
A reversal would be a tall order for the current government, especially at a time when Pakistan’s consumer inflation hit 12.7 percent in March.
In Washington, Ismail also met with the managing director of the World Bank and the two parties discussed the possibility of unblocking around $1.8 billion of World Bank loans that had also stalled due to the lack of compliance with the actions promised by the last government. or because of bureaucracy. drawbacks, the sources added.
After his meetings in Washington, Ismail will travel to London to meet Supreme Nawaz Sharif of the Pakistan Muslim League-Nawaz (PML-N).

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