Before its board decides whether to release at least some of the $2.5 billion still owed under a lending programme that will end at the end of this month, Pakistan must satisfy the IMF on three counts, beginning with a budget that will be presented on Friday, an IMF official said on Thursday.
As the $6.5 billion Extended Fund Facility (EFF) was set to expire, Esther Perez Ruiz, the International Monetary Fund’s resident representative for Pakistan, stated that there was only time for one more IMF board review.
Pakistan hardly has enough foreign exchange reserves to pay for imports for a month. However, the IMF has insisted on a number of restrictions, delaying the transfer of $1.1 billion of the cash that it had anticipated getting in November.
Perez Ruiz responded to Reuters’ email inquiry by saying, “As communicated to the authorities, there can be one remaining Board meeting under the current EFF at the end of June.”
“It is critical to restore the proper operation of the FX market, pass an FY24 Budget consistent with programme objectives, and secure firm and credible financing commitments to close the $6 billion gap ahead of the Board to pave the way for a final review under the current EFF,” she continued. There is a lot the government needs to accomplish before the EFF expires in little over three weeks.
Pakistan was given a mission by the IMF to secure $6 billion in external funding pledges from other sources, but it has only succeeded in collecting commitments for $4 billion, primarily from Saudi Arabia and the United Arab Emirates.
Pakistan removed daily limits on fluctuations earlier this year in response to pressure to move to a more market-determined exchange rate regime and close an unofficial currency market, but analysts believe the authorities are still trying to control the exchange rate out of concern that the rupee could fall too far.
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The IMF’s general expectations for the 2018 budget were outlined by Perez Ruiz.
The FY24 budget is being discussed with an emphasis on finding a compromise between the need to boost social expenditure and the need to improve debt sustainability prospects.
According to Perez Ruiz, increasing such expenditure will help Pakistan’s most vulnerable citizens avoid the effects of inflationary pressures. However, the government still has to make headway in identifying spending and revenue-generating strategies.
With inflation reaching a record high of 37.9 percent in May, the nation is suffering from an acute economic crisis.
In an effort to convince the IMF to release funds, the government has increased taxes, increased energy prices, and reduced subsidies. Additionally, its central bank has boosted policy interest rates to a record high of 21%.
Only eight of the 10 reviews that were scheduled to occur during the EFF have actually been carried out by the IMF, with the most recent taking place in August of last year.
Prior to the budget, which is due on June 9, Pakistan is about to release its economic report with significant figures.
Ahead of the general election, several observers predict that the administration will present populist policies on Friday, even if they must eventually be pulled back.
According to Fahad Rauf, head of research at Ismail Iqbal Securities, he anticipates an increase in government employee pay and a package for the agricultural industry, along with some, if any, significant moves to widen the tax base.
Sakib Sherani, an independent economist, expressed his agreement that the budget will be loaded with populist pre-election initiatives that would be unlikely to last through the July-September quarter due to the need for more IMF help.
