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Pakistan agrees to IMF terms for $1.1bn pay­out

11-02-2023

By SJA Jafri + Bureau Report

ISLAMABAD: Pakistan says it has agreed with the International Monetary Fund (IMF) on conditions to release about $1.1bn in financial aid critical to escape an economic collapse.

As an IMF team left cash-strapped Pakistan on Friday after 10 days of talks with the government, finance minister Ishaq Dar said the payout was delayed due to “routine procedures”.

Pakistan had signed a $6bn bailout package with the IMF in 2019, with another $1bn added to the program a year later. The first payment of $1.1bn has been stalled since December.

“The prime minister has said we are committed … We will implement whatever has been agreed upon between our teams,” Dar told reporters.

“We will try to make sure Pakistan completes its second IMF program in its history,” he added.

In a statement, Pakistan IMF Mission Chief Nathan Porter said “considerable progress” was made in their talks with the Pakistani government, adding that the negotiations will continue. Dar said the government will implement fiscal measures demanded by the IMF, including raising 170 billion Pakistani rupees ($627m) through new taxes.

Also, commitments to increase fuel taxes will be completed, with diesel levies to be doubled to 5 rupees a litre on March 1 and again on April 1 this year.

Pakistan is battling an economic meltdown, compounded by a balance of payment crisis, record inflation and a plummeting rupee that has lost value more than 10 percent of its value in the last two weeks.

Prime Minister Shehbaz Sharif last week said the economic situation was “unimaginable”.

Catastrophic floods last year worsened the crisis, with food security concerns due to the floods, continuing political chaos and worsening security situation adding to it.

According to the central bank’s data on Thursday, the country’s foreign exchange reserves fell to $2.9bn during the week ending February 3.

Experts fear the reserves would last less than 20 days and any delay in an IMF payout could have serious consequences.

Asad Sayeed, a Karachi-based economist with the research firm Collective for Social Science Research, told media that while both the IMF and the government appear “moderately positive” over their talks, the next week is going to be critical for Pakistan.

“There are a lot of decisions to be made and they need to be done as soon as possible, which makes the next week so important. If the government does what the IMF wants, perhaps then we can see the completion of their agreement but if it does not, it will be a red signal for the country.”

Economist Haris Gazdar pointed towards a “technical-political dichotomy” regarding the IMF deal. “The technical agreement would already signal an IMF nod and the advantage it confers upon the government. The IMF obviously needs ‘political’ commitment before it confers that advantage,” he told media.

Gazdar said the IMF conditions are not unfamiliar to Pakistan, which has entered into more than 20 such programs with the global lender since 1958.

“The things they have asked us includes revenue collection, phasing out untargeted subsidies, non-interference with exchange rate etc. Since the relationship between these variables and actual economic outcomes is never precise, there is room for genuine disagreement on targets that must be met,” he said.

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