Saturday Aug 13, 2022
ISLAMABAD: Federal Minister for Finance and Revenue Miftah Ismail said that the International Monetary Fund’s (IMF) executive board is expected to meet on August 29 for taking up Pakistan’s request to approve seventh and eighth reviews and release a tranche of $1.17 billion under the Extended Fund Facility (EFF), The News reported Saturday.
Commenting on the latest developments in the IMF programme, Miftah told the publication: “We have received the Letter of Intent (LoI) copy and we will send it back to the IMF’s executive board on Monday.
“The revival of IMF programme indicates that the country’s external financing needs have been fulfilled by the bilateral friends and also conveyed to the IMF.”
A day earlier, Pakistan received the much-awaited LoI from the IMF, which would be sent back to the Fund’s executive board with the request to revive the stalled programme under the EFF.
The revival of the augmented $7 billion EFF programme will be considered by the IMF’s executive board in its meeting scheduled to be held on August 29, 2022 in Washington, DC.
Shedding light on the developments on other conditions laid forth by the global lender, the minister said that Pakistan State Oil (PSO) was facing a difficult liquidity situation owing to increased liabilities and a hike in circular debt that got accumulated during the tenure of the PTI-led government. The same situation occurred in the gas sector whereby the monster of circular debt touched Rs1,500 billion mark.
Sources said the Ministry of Finance received the LoI on Friday and they were reading each paragraph of the document.
“There is nothing unusual so far in the LoI,” they said, adding that after reading it carefully, the finance minister and State Bank of Pakistan Acting Governor Dr Murtaza Syed would sign it and send it back to the IMF’s executive board for getting its final nod.
The IMF programme got stalled in February 2022 when the PTI-led government announced untargeted fuel and electricity subsidies soon after getting approval on completion of the sixth review and release of $1 billion tranche from the IMF.
Amid the dwindling foreign currency reserves, which have reduced to $7.8 billion held by the SBP, the revival of the IMF programme was a must to bridge the external financing gap.
The challenging situation would persist because Pakistan would have to build up its foreign currency reserves to avoid the emergence of a default-like situation. It seems that after the completion of the ongoing EFF programme in June 2023, Pakistan would have to seek another IMF programme in the next fiscal year.
Ministry of Finance's former adviser Dr Khaqan Najeeb said that the continuation of the IMF programme was “indeed necessary” for a country like Pakistan facing a balance of payment challenge and critically low reserves of $7.8 billion to avoid further distress. “However, this breather must be used wisely,” he added.
Dr Najeeb explained that the current programme with the IMF could help ride over the liquidity crunch, by ensuring external fund flows in the fiscal year 2022-23 along with an uptick in domestic revenues through higher taxes, help tame the quasi-fiscal losses in the energy sector through hurtful but necessary price pass-throughs.