With the IMF seeking additional information about budgetary affairs, the government is reportedly hesitant to finalise a deal, fearing that implementing some of these demands will hike the prices of essential items across the board.
The latest demand comes as the country urgently needs to generate $10 billion in foreign loans for the remainder of the current fiscal year to prevent default.
Islamabad is waiting for the 9th review of a loan-arrangement that the previous government signed with the IMF. The review would lead to the release of the next tranche of funds to Pakistan that has been pending since September.
Sources are of the view that the remaining loan repayment requirements and external financing of managing current account deficit to the tune of $8 to $10 billion cannot be raised without backing and revival of the stalled IMF programme.
On the other hand, the government is set to table as plan to erase the circular debt of gas sector before the upcoming meeting of the federal cabinet by hiking tariff and bringing changes in the existing slabs to fulfil the IMF condition.
Earlier, OGRA – the power sector regulator – has already allowed Sui Northern Gas Pipeline Ltd and Sui Southern Gas Company to hike rates up to 75 percent, subject to cabinet approval.
According to the sources, both sides are still discussing the seven demands that the IMF wanted Pakistan to accept before resuming economic assistance to the country which include withdrawing electricity subsidies, linking gas prices to the international market, free-floating dollars, and not blocking LCs [letters of credit].
Earlier, Pakistan shared the contours of areas for accomplishing the pending 9th review under the $7 billion Extended Fund Facility (EFF). Now the IMF has sought more details on the budgetary position which would be shared with the global lender soon.
The State Bank of Pakistan in its latest monetary policy conceded that near-term challenges for the external sector have risen despite the policy-induced contraction in the current account deficit during the first half of the fiscal years [FY23].
According to official data, Pakistan was required to pay back $23 billion in the current fiscal year 2022-23 out of which it had already repaid back $15 billion in external debt servicing. Out of $15 billion in debt repayments, the government repaid $9 billion while securing a rollover of $6 billion in the first half of the current fiscal year.
Now there is a remaining repayment requirement standing at $8 billion in the second half (Jan-June) period of the current fiscal year. The government has obtained a commitment to get a rollover of $3 billion from the bilateral creditor coming March 2023.
The current account deficit is projected to range from $8 billion to $9 billion so the government will have to manage another $5 billion in the remaining months. The amount stood at $3.7 billion in the July-Dec period and it is projected to go up by another $5 billion in the second half.
According to the central bank’s presentation, “The completion of the 9th review will improve external sector outlook.”
The IMF officials have indicated that they are willing to continue working with Pakistan, but the country should first meet some basic requirements. “They are asking for basics, so that they can send their team to Islamabad, but the finance minister is reluctant to do so,” said an official aware of the talks. In this connection, the IMF was asking for “some movement on energy prices and the demonstration of Islamabad’s intent to reform but Finance Minister Ishaq Dar is not giving an in