The stage now seems set for the revival of the program and disbursement of a USD 1.17 billion tranche before August is out.
By Muhammad Ali
ISLAMABAD: Pakistan Tuesday shot off a Letter of Intent (LoI) to the International Monetary Fund (IMF), indicating everything is in order for the revival of a stalled multi-billion dollar bailout program the country needs to stay solvent on its external obligations.
“We have signed LoI and sent it back to the IMF”, a top official of the Finance Division confirmed on Tuesday afternoon. The letter has been co-signed by Dr Miftah Ismail, the Finance Minister; and Dr Murtaza Saeed, the acting governor State Bank of Pakistan.
The stage is now set for the Fund’s executive board to put its seal on a staff-level agreement Pakistani officials reached with the Fund in July for the revival of the original USD 6 billion Extended Fund Facility (EFF). Also on the agenda will be an enhancement of the facility by USD 1 billion, and program extension by one year.
Originally signed by the government of former Prime Minister Imran Khan, the EFF has been on the rocks after it was derailed in JJJJ 2021 when Khan’s administration lost prudential bearings, abandoning crucial reform targets agreed as part of the program.
Earlier on Tuesday, Minister for Finance Miftah Ismail said that the IMF’s Executive Board was expected to meet on August 29 in Washington DC to consider Pakistan’s request for the revival of the bailout program.
One of the immediate results of the approval will be the release of a combined tranche worth USD 1.17 billion. Equally important, Pakistan will win implicit endorsement for financing from international financial markets.
Addressing a news conference at Ministry of Finance, Miftah Ismail severely criticized the economic policies of the previous government led by Khan’s Pakistan Tehreek-e-Insaf (PTI), maintaining they made no effort to curtail imports or to restrict current account deficit and budget deficit.
He said the PTI leadership indulged in rhetoric in the name of self-reliance and genuine independence, but put in no real work. He was askance as to how a country could attain genuine independence with its prime minister and finance minister going from country to country with the begging bowl.
He said under Khan’ watch, the country’s imports had ballooned to USD 78 billion and exports anguished at USD 31.7 billion so the trade deficit widened to USD 48 billion.
The Finance Minister maintained that Imran Khan had gutted Pakistan’s economy and brought it to brink of default. However, the Pakistan Democratic Front (PDM) administration took very tough decisions and now there was no risk of default.
Referring to the precarious balance of payments situation when he first assumed the ministry after Prime Minister Shehbaz Sharif took office in April 2022, Ismail said he had to seek help of local and international banks to secure LCs for PSO to avert a disruption of fuel supply chain.
He asserted that the situation had since improved and there was no risks to the nation’s fuel supplies. He, however, said that he planned to curtail imports to bring the import bill close to total remittances and exports in the current fiscal year.
The minister said that the rupee had depreciated massively after July 17, 2022 and it had gone up to Rs240 against US dollar in the interbank market. Now, however, the Pakistani has gained strength and been rated the world’s strongest currency at the moment.
Commenting on the outcry over the hike in petrol prices, the Finance Minister said that there was transparent mechanism in place for fixing the POL prices in the domestic market. He said that the OGRA made calculations and then Ministry of Finance took the decision about imposition of taxes and petroleum levy.
In the recent petrol hike, he said that the government did not increase tax or levy and it went up because the L/Cs were opened when the average price and exchange rate was on higher side.
Initially, he said that it was estimated that the petrol price would go up by Rs9/litre but later on OGRA’s calculation just hiked petrol price by Rs6.72/litre without increasing tax or levy.
Putting the domestic fossil fuel prices in regional context, Ismail said that petrol price in India stood at Rs303/litre at a time when its foreign exchange reserves were 60 times higher compared to Pakistan. In Bangladesh, the petrol price stood at Rs308/litre when the foreign exchange reserves were USD 35 billion.
To a query regarding jacking up petroleum levy by Rs10/litre in September 2022, the minister replied that whatever agreement signed with the IMF it would be implemented.
The Minister did not respond to journalists’ questions about criticism of the petrol price hike by Mariam Nawaz Sharif when she tweeted that she did not own the decision. The Minister said that he would own and defend all decisions taken by the PDM administration.
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