ISLAMABAD: The government on Tuesday claimed to have reached an understanding with the International Monetary Fund (IMF) for a new $5.25 billion bailout package under which power sector subsidies will be eliminated gradually in three years.

“The issues have been settled with the IMF mission. The paper work will be completed on Wednesday,” a government official told journalists late in the night. In his view, the finalisation of a letter of intent and memorandum of economic framework will be done on Wednesday.“There is convergence on almost all issues. Only formalities remain to be completed,” another official said.

“Hopefully, the two sides will jointly brief the media about the completion of talks on Wednesday,” he said.

He said the government had agreed to remove all power sector subsidies in three years to achieve full cost recovery and the outstanding dues of the power sector, payable by the public and private sector consumers, would be recovered within six months.

He said the government had handed over a detailed energy plan to the IMF mission, but it had yet to be decided if the subsidy should be limited only to 100 units of monthly electricity consumption or 200units. The two sides would hold discussions on this issue on Wednesday, he added.

The government also committed to conducting a ruthless taxation audit and take strict administrative measures, including swift and forceful defence of court cases holding up billions of rupees in taxes, to yield more revenues but did not agree to impose more taxes, the official said. He said the overall objective of the new programme would be to reduce fiscal deficit to 4-4.5 per cent of the GDP.

Another official said the finance minister was likely to brief the prime minister in the morning about undertakings given to the IMF.

Finance Minister Ishaq Dar did not talk to journalists waiting outside the finance ministry at about midnight and angrily said since he had not invited them, he could not appear before cameras on a daily basis. He also directed security personnel not to allow journalists to enter the finance ministry during his stay there.

The Extended Fund Facility (EFF) would carry an effective interest rate of 9 per cent and a repayment period of up to 10 years. Pakistan’s quota with the IMF currently stands at about 1.1 SDRs and since it would be availing 300 per cent (four times) of its quota, the total size of the programme works out at 3.5 SDRs or $5.25 billion (1SDR=$1.5). In net present value terms, the EFF becomes comparatively cheaper given its longer repayment schedule.