The ruling PDM has burnt a lot of political capital, making a series of tough calls to put an IMF bailout back on the rails – and to avert external default.
By Mohammad Ali
ISLAMABAD: Pakistan Monday executed the last of the so-called prior actions to qualify for the revival of a stalled multibillion-dollar International Monetary Fund (IMF) bailout program when the government jacked up diesel fuel prices.
The only hitch left behind now is securing bilateral commitments to bridge the country’s USD 4 billion external financing gap before sending its Pakistan’s Letter of Intent (LoI) to the Fund in the first week of August.
Pakistan’s Letter of Intent (LoI) must arrive in time for the Fund to circulate among its executive board members 15 days ahead of their next meeting, scheduled for August 24, 2022.
This is why Pakistan needs to secure commitments for a total of USD 4 billion in financing from friendly countries in the first week of August before the Muslim holiday of Ashura, falling on August 7-8 this year.
Raising bilateral financing was not an explicit prior action of the IMF deal. However, without fulfilling gross external financing requirements, the IMF could not accomplish 7th and 8th reviews because certain tables required filling the financing gap.
The IMF has already made at a staff-level accord for the revival of its Enhanced Fund Facility (EFF) program, but Fund’s executive board must put its seal on the deal for it to go into effect.
Pakistan now has to sign Letter of Intent (LoI) for dispatching to the IMF’s Executive Board within next ten days after securing commitments from bilateral friends adequate to bridge the USD 4 billion financing gap to pave the way for revival of stalled program IMF program on August 24, 2022.
The LoI will duly be signed by Minister for Finance Miftah Ismail and Governor State Bank of Pakistan (SBP) Murtaza Syed within the ongoing week starting from August 1, 2022.
Top Ministry of Finance official in background discussions stated that the Chief of Army Staff (COAS) in his contact to Biden administration threw his weight behind the government request for the IMF for showing lenient attitude on financing of USD 4 billion from friendly countries.
Pakistan has so far fulfilled prior actions placed the IMF for securing the revival of Fund program including getting approval of the financial year 2022-23 budget and reforming Personal Income Tax in line with the IMF staff agreement, signing by the federal and provincial governments of MoU on fiscal targets consistent with FY23 budget.
The reversal of relief package is part of prior actions and full elimination of fuel subsidies, raising petroleum development levy (PDL) every month to fetch up to PKR 50 per liter. Now the PDL will be further hiked with effect from August 1, 2022.
The power tariff raised including PKR 3.50 per unit in annual rebasing (AR) and full subsidy reform mark-up PKR 0.20 per kwh on July 25, 2022, second stage AR of PKR 3.50 per unit from August 1, 2022 and third cabinet approval on implementation of third full stage AR on October 1, 2022 of PKR 0.91 per kwh.
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