IMF warns of ’exceptionally high’ risks for Pakistan, calls for additional aid beyond election cycle
The International Monetary Fund (IMF) has stated that Pakistan requires additional financial support beyond the current IMF program and standby arrangement. The IMF report highlights the need for further assistance to address Pakistan's cash-strapped situation and resolve its structural challenges.
The International Monetary Fund, based in Washington, has stated in a 120-page report released on Tuesday that Pakistan requires an additional IMF program and assistance from other international lenders beyond the current election cycle and the ongoing standby arrangement.
The report analyzes Pakistan's macroeconomic outlook and highlights the need for further financial support to address the country's cash-strapped situation, PTI reported this citing The Dawn newspaper.
The report is founded on the Memorandum of Economic and Fiscal Policies (MEFP), which was signed by Pakistan's Finance Minister Ishaq Dar and State Bank Governor Jameel Ahmed.
The fund said, “Resolving Pakistan’s structural challenges, including long-term BOP [balance of payments] pressures, will require continued adjustment and creditor support beyond the current programme period."
Last week, the IMF approved the USD 3 billion bailout program for Pakistan. The financial assistance aims to support the government's initiatives in stabilizing the country's struggling economy.
Also Read: Pakistan seals $3 Billion lifeline: IMF deal offers hope for economic resurgence
“A possible successor arrangement could help anchor the policy adjustment needed to restore Pakistan’s medium-term viability and capacity to repay,” the report said.
The IMF assessment stressed that Pakistan’s economic challenges were complex and multifaceted, and risks were exceptionally high.
“Addressing them requires steadfast implementation of agreed policies, as well as continued financial support from external partners. Consistent and decisive implementation of programme agreements will be essential to reduce risks and maintain macroeconomic stability,” it said.
According to the report, the government has committed to an international agreement to promptly inform about a ₹5 per unit rise in electricity prices and a more than 40 per cent increase in gas rates. This decision comes as the circular debt in the gas sector is now on par with the losses faced by the power sector.
Also Read: Pakistan lost $8.3 bn in remittances, exports in FY23 amid bid to secure IMF bailout
Furthermore, the government has made assurances to reevaluate power-purchase agreements with the remaining power producers, including those from China, and consider extending the duration of their debt repayment schedules.
In the gas sector, the government has pledged to promptly notify any adjustments in gas tariffs as determined by Ogra (Oil and Gas Regulatory Authority). Additionally, they plan to merge the gas rates for both locally produced and imported natural gas, using a weighted average tariff approach.
The government has also provided an assurance to safeguard the fiscal program outlined in the recent budget and other obligations made with the IMF.
PTI noted that for this, the government will not allow supplementary grants for any additional unbudgeted spending over the parliamentary approved level in the current fiscal year, at least until the formation of a new government after the elections (except in case of a severe natural disaster).
The government has also given a “commitment not to launch any new tax amnesties or grant further any new tax exemptions in 2023-24 including through the budget or statutory regulatory orders without prior (assembly) approval”.
The government has also provided agreements with each province on their commitment to achieving an end-FY24 fiscal position consistent with the fiscal year’s general government primary balance goal of ₹401 billion and continuing focus on critically urgent energy sector policies, including not introducing any fuel subsidy, or cross-subsidy scheme, in FY23 and beyond, PTI noted.
In addition, the government has committed to ensuring monetary and financial stability by returning to a market-determined exchange rate, lowering inflation toward the target, and rebuilding foreign exchange reserves.
According to the report, the authorities have committed to refrain from providing guidance or showing a preference to market participants regarding the exchange rate. They will also avoid regulating the demand for foreign exchange through formal or informal administrative measures.
Once the proper functioning of the market is restored, the government has pledged to maintain the average premium between the interbank and open market exchange rates within the range of 1.25 per cent and minus 1.25 per cent during any consecutive five-day period. Additionally, they will publish daily interbank and open market exchange rates, as reported by Dawn.
As per the report, the government will need to approach the donor again next month to request a fresh loan.
(With inputs from PTI)
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First Published:19 Jul 2023, 02:02 PM IST
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