News Desk
ISLAMABAD: The International Monetary Fund (IMF) is set to review Pakistan’s budget plans for the upcoming financial year, a process that could pave the way for a crucial injection of financing for the cash-strapped country, Reuters newswire reported on Thursday.
The IMF’s country mission chief, Nathan Porter, said that the budget review is a necessary step before the lender can approve the release of pending bailout funds that are critical to resolving Pakistan’s acute balance of payments crisis.
The release of a staff-level agreement to release $1.1 billion has been delayed since November.
In all IMF programs, the authorities issue a letter of intent outlining their policy intentions for the period after the program, Porter said.
The finance ministry did not respond to requests for comment from Reuters.
Pakistan has struggled to reach a deal with the IMF to release funds critical to stabilizing the economy.
Economist Sakib Sherani of Macroeconomic Insights said that the IMF wants to ensure that the government remains committed to the agreed path of fiscal consolidation as the country prepares for elections later this year. “Historically, the biggest fiscal slippages in Pakistan occur in an election year,” Sherani said.
It is unclear whether the budget review will affect the pending ninth review or whether it will be part of the two reviews that remain after this.
Finance Minister Mohammad Ishaq Dar reiterated on Thursday that Pakistan has already taken all the agreed steps to unlock the funding.
Prior to this, the government said that external financing was the last hurdle for the deal.
Pakistan is required to give an assurance that its balance of payments deficit is fully financed for the fiscal year ending in June to unlock the next tranche of IMF funding. The United Arab Emirates, Saudi Arabia, and China have pledged to assist Pakistan, covering some of the funding deficit.
The $1.1 billion tranche is part of a $6.5 billion bailout package that the IMF approved in 2019, which is due to end in June, prior to the budget. To unlock the IMF funding, the government has removed caps on the exchange rate, imposed taxes, raised energy tariffs, and scaled back subsidies. It has also raised key interest rates to a record 21 percent.
Pakistan is reeling from an economic crisis, with inflation surging to 36.4 percent, the highest in its history and the highest in South Asia. The country is expected to face further economic challenges as it prepares for elections later this year.
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