ISLAMABAD: The Inter­national Monetary Fund (IMF) confirmed on Tuesday that Pakistan had completed all prior actions for the revival of its loan progra­mme but linked the approval of a $1.18 billion disbursement by its executive board later this month to confirmation of $4bn in additional inflows from Islamabad’s friendly countries.

“With the increase in PDL (petroleum development levy) on July 31, the last prior action for the combined seventh and eighth review has been met,” IMF’s Resident Representative in Islamabad Esther Perez Ruiz said, adding that the Fund’s board meeting was tentatively planned for late August “once adequate financing assurances are confirmed”.

The IMF has evaded talking about the financing gap required to be arranged through friendly countries, but Finance Minister Miftah Ismail said soon after reaching the staff-level agreement with the Fund on July 13 that the lender had estimated a $4bn financing gap for the current fiscal year that the government had pledged to arrange from a group of “friendly countries” before the close of July.

When asked on July 31, the minister said efforts were in progress and funds would be arranged in a couple of days.

Mainly because of the delay in formal commitment from those friendly countries, the exchange rate has been under continuous pressure amid declining foreign exchange reserves.

The government has been engaged with these countries at different levels over the past weeks, including through political, military and diplomatic channels, but formal announcements have not come through.

As part of the process, the government also tried to promulgate an ordinance for swift transfer of minority shares of listed state-owned entities to generate about $2bn to 2.5bn but had to take the parliamentary route instead. The relevant bill is now pending with the National Assembly for passage.

Mr Ismail and the State Bank of Pakistan (SBP) have been blaming the political turmoil in the country for steep currency depreciation and a bullish stock market.

The finance minister earlier announced the government had lined up $8.5bn to 10bn inflows from friendly countries against a financing gap of $4bn estimated by the IMF.

The IMF last month announced the much-awaited staff-level agreement with Pakistan with a nine-month extension in tenor and a $1bn increase in the size of the bailout package to $7bn, including upfront disbursement of about $1.18bn.

Its approval from the executive board of the IMF was, however, linked to a series of prior actions, which the government has now fulfilled over the past two weeks.

These included a revised federal budget envisaging over 2.5 per cent of GDP worth of additional taxes, signing of agreements with provinces for over Rs700bn cash surplus, hike in SBP’s policy rate, increase in power tariff, and the reviving and continuously increasing the petroleum development levy on the sale of petroleum products.

Under the staff-level agreements, authorities pledged a primary budget surplus of 0.4pc of GDP, or about Rs310bn, under the revised target given by the Fund’s team.

This meant the government would have to finance all its expenditures, excluding debt servicing, through its own revenues and yet spare about a Rs310bn buffer by making further fiscal adjustments of about Rs155bn through additional revenue measures, expenditure cuts or both.

On top of this, the IMF has also made it binding on the authorities to “stand ready to take any additional measures necessary to meet programme objectives, given the elevated uncertainty in the global economy and financial markets”.

Since then, the government has decided to impose Rs30bn in additional taxes to make up for an unseen supplementary grant required to bailout state-run Pakistan State Oil, whose more than Rs610bn are stuck with the government, its entities or private companies choked by non-payments by the public sector.

Likewise, the government also committed to ensuring the timely implementation of power tariff rebasing as already determined by the power regulator Nepra along with quarterly and monthly adjustments to rein in rising circular debt, which the IMF estimated to have increased by Rs850bn last fiscal year ending June 30. The government has now announced a schedule for a gradual power tariff increase.

The government has since also revised the petroleum development levy on petroleum products at the rate of Rs10 on petrol and Rs5 per litre on high-speed diesel, light diesel and kerosene on July 14 and these rates have now been doubled to Rs20 per litre on petrol and Rs10 per litre on three other products with effect from Aug 1 — the last prior action under the commitment.

Going forward, the authorities would improve and consolidate anti-corruption laws and efforts as committed under the original 2019 agreement and then made a structural benchmark for end-December 2021, revised to end-June 2022 in January this year by former finance minister Shaukat Tarin.

The original $6bn worth of 39-month extended fund facility (EFF) — provided to countries facing serious payment imbalances because of structural impediments or slow growth and an inherently weak balance-of-payments position — was to end in September this year, but only three tranches of about $3bn could so far be disbursed as the programme suffered repeated breakdowns.

Published in Dawn, August 3rd, 2022