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IMF ‘agrees’ to increase EFF loan size to $8bn

Global lender also decides to extend stalled bailout programme for Pakistan by up to a year

Pakistan and the International Monetary Fund (IMF) have reportedly agreed in principle to extend the stalled bailout programme by up to a year and increase the loan size to $8 billion, giving markets the much-needed stability and breathing space for the new government.

The understanding was reportedly reached between Finance Minister Dr. Miftah Ismail and IMF Deputy Managing Director Antoinette Sayeh in Washington.

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Subject to the final modalities, the IMF has agreed that the programme will be extended by another nine months to one year as against the original end period of September 2022.

The size of the loan would be increased from the existing $6 billion to $8 billion – a net addition of $2 billion, a local media outlet quoted a senior government functionary as saying. The IMF is expected to issue a statement today (Monday) in this regard.

The previous PTI-led government and the IMF had signed a 39-month Extended Fund Facility (EFF) [from July 2019 to September 2022] with a total value of $6 billion. However, the previous government failed to fulfil its commitments and the programme remained stalled for most of the time, as $3 billion remained undisbursed.

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Before taking Pakistan’s case to the IMF Board for approval, Islamabad would have to agree on the budget strategy for the next fiscal year 2022-23, the report said.

Also, the government of Prime Minister Shehbaz Sharif would have to demonstrate that it would undo some wrong steps taken by the former regime against the commitments that it gave to the IMF Board in January this year.

Pakistan is passing through a phase of political and economic uncertainty and the decision to stay in the IMF programme for longer than the original period would bring clarity to economic policies and soothe the rattling markets.

Minister of State for Finance Dr. Aisha Ghaus Pasha, outgoing State Bank Governor Dr. Reza Baqir, Finance Secretary Hamid Yaqoob Sheikh and Pakistan’s Executive Director to the World Bank Naveed Kamran Baloch also participated in the meeting with the IMF team.

The names of a banker and former bureaucrat Shahid Mahmood are being considered as Dr. Baqir’s replacement, who is going to complete his term on May 4. To give a final shape to the extended programme, an IMF mission would visit Pakistan likely on May 10. The IMF team will be led by its new mission chief, Nathan Porter.

The announcement of the mission’s visit to Pakistan was made in a press release issued by the Finance Division following Ismail’s meetings with IMF officials.

“The delegation discussed pathways to complete the seventh review. Miftah Ismail… laid out his government’s priorities and efforts to bring fiscal discipline while insulating the vulnerable from oil price volatility in the international markets,” said the statement.

On the successful conclusion of talks, it is being expected that both sides would reach a staff-level agreement, a senior official at the Finance Ministry said.

The technical staff of Pakistan and the IMF would start engagement from today (Monday) to see the budget position in light of the “irresponsible” decisions made by the previous government.

However, before formally securing the IMF approval for increasing the programme size and the cash limit, the government will have to show that it is sincere in making the needed tough policy decisions.

The IMF had asked Pakistan to withdraw fuel and electricity subsidies that former premier Imran Khan had announced on February 28 in “total disregard for fiscal prudence” and to “gain the lost support” due to double-digit inflation in the country.

Finance Minister Ismail has said last week that the government was giving Rs21 per litre subsidy on petrol and Rs51.54 per litre on high-speed diesel, which in the month of April alone would cost the taxpayers Rs68 billion.

World Bank:

On the other hand, Finance Minister Miftah Ismail held separate meetings in Washington with World Bank’s Vice president, MD and IMF deputy MD, to discuss the economic situation and the restoration of the debt programme. The World Bank assured Pakistan of continued cooperation in this regard. Miftah Ismail is currently on a visit to the United States, where he is holding meetings to talk to international financial institutions for debt relief programmes and cooperation for financial aid.

According to the latest information, Miftah Ismail held separate meetings with the vice president and MD of the World Bank in Washington, in which the economic condition of Pakistan and the cooperation of the World Bank were discussed.

He also held a virtual meeting with Pakistani-American IT businessmen and investors and discussed investment opportunities in Pakistan.

The biggest challenge for the present government is to provide relief to the people in the forthcoming budget.

Earlier, World Bank Bi-Annual Pakistan Development Update Report revealed that longstanding structural challenges like low investment, low exports and low productivity growth pose a risk to Pakistan’s sustained growth. It also stated that the macroeconomic risks were very high.

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