By Khaleeq Kiani
Published in DAWN on August 13, 2022
ISLAMABAD: The International Monetary Fund (IMF) has convened a meeting of its executive board on August 29 to approve a bailout package for Pakistan, including disbursement of about $1.18bn, before the close of current month.
The move follows the completion of the $4 billion in bilateral financing from four friendly nations and would pave the way for an immediate disbursement, expected to be in Pakistan’s account before the end of working hours on August 31.
Finance Minister Miftah Ismail told Dawn that a letter of intent (LOI) had been received early Friday from the lender for the revival of the programme under the staff level agreement (SLA) and memorandum of economic and fiscal policies (MEFP) signed last month.
“We are going through the LOI, would sign and send [it] back to the IMF anytime soon and look forward to (executive) board meeting later this month for approval,” he said.
Miftah says letter of intent for programme’s revival to be signed, returned to lender in coming days
Sources said the executive board would meet on August 29 to take up Pakistan’s case for approval of the completion of seventh and eighth reviews of the Extended Fund Facility (EFF), besides a $1bn increase in size of the programme to $7bn and the extension of its tenure to August 2023.
Sources said the board meeting was convened after Saudi Arabia, the United Arab Emirates, Qatar and China confirmed to the IMF that they had completed arrangements for $4bn in bilateral financing to Pakistan, which was the last hitch to the bailout package after completion of all the prior actions agreed under the SLA. The IMF board’s clearance was expected to reverse continuously depleting foreign exchange reserves, strengthen Pakistani rupee and support balance of payments.
With increase in petroleum development levy on oil products on July 31, the IMF had publically confirmed that Pakistan had completed all the prior actions for revival of its programme but had linked the approval of disbursement of $1.18bn funds by its executive board to confirmation of $4bn additional inflows from the four friendly countries.
Since then, the rupee had been recovering against the dollar, from about Rs240 per dollar to less than Rs216 at present, and stock market had been showing robust activity following months of downturn. The exchange rate had been under continuous pressure amid declining foreign exchange reserves, mainly due to delay in formal commitment by the friendly countries.
The finance minister had earlier claimed to have lined up $8.5bn-$10bn inflows from the friendly countries against a financing gap of $4bn estimated by the IMF, but at the same time blamed political turmoil in the country for steep currency depreciation and bullish stock market.
The IMF had announced on July 13 a much-awaited staff-level agreement with Pakistan on nine-month extension in tenor and $1bn increase in size of the bailout package to $7bn, including upfront disbursement of about $1.18bn.
Its approval from the IMF executive board was, however, linked to a series of prior actions that the government fulfilled over the past two weeks
On top of this, the IMF also made it binding on the authorities to “stand ready to take any additional measures necessary to meet programme objectives, given the elevated uncertainty in the global economy and financial markets”. Since then, the government waived taxes on small traders and decided to impose over Rs40bn worthy of additional taxes to make up for an unseen supplementary grant required to bailout the state-run Pakistan State Oil whose more than Rs610bn is stuck up with the government, its entities or private companies choked by non-payments by the public sector.
Likewise, the government also gave a commitment to ensure timely implementation of power tariff rebasing as already determined by the power regulator along with quarterly and monthly adjustments to rein in rising circular debt which the Fund estimated to have increased by Rs850bn last year ending June 30. The government has now notified a schedule for gradual power tariff increase.
The government has since also revised the development levy on petroleum products and fixed at the rate of Rs20 on petrol and Rs10 per litre on high speed diesel, light diesel and kerosene – the last prior action under the commitment.
The original $6bn worth of 39-month Extended Fund Facility (EFF) — provided to countries facing serious payment imbalances because of structural impediments or slow growth and an inherently weak balance-of-payments position — was to end in September this year, but only three tranches of about $3bn could so far be disbursed as the programme suffered repeated breakdowns.