Pakistan’s Economy Faces Unimaginable Challenges in IMF Bailout Negotiations
By Pakistan Prime Minister Shehbaz Sharif has warned of an unimaginable economic challenge, with the International Monetary Fund (IMF) delegation giving the country's Finance Minister Ishaq Dar a “very tough time” in ongoing bailout negotiations.[0]
Sharif said in a televised address that the conditions the country has to agree to with the IMF are “beyond imagination”, yet it is mandatory to fulfil the demands of the financial agency.[1] He further elaborated that the IMF had identified an over PKR 2,000 billion breach in budgetary estimates for 2022-23 in its initial assessment, which might result in escalating the budget deficit and primary deficit targets with a massive margin.[2]
The IMF has also demanded a significant increase in the petroleum development levy on diesel to Rs50 from the current Rs40 per litre, and the impact of the depreciation of the rupee will be reflected in the next review of POL prices.[3] Furthermore, with foreign exchange reserves dropping to $3.08 billion, Pakistan has no other option but to accept the International Monetary Fund's stringent riders for resumption of the loan package under the Extended Fund Facility (EEF).[4]
The government has given up the exchange rate cap, resulting in the rupee depreciating more than Rs40 per dollar within a week, and raised the policy rate by 1% to 17% in order to facilitate the IMF for the completion of the 9th quarterly review, which had been pending for over four months.[5] The government also increased petrol and diesel prices by Rs 35 per litre with immediate effect.[6]
The IMF has also assessed that the government did not recover the Fuel Price Adjustment of Rs 65 billion for the current fiscal year and has called on the Pakistan government to increase the electricity tariff in the range of Pakistani Rupees (PKR) 11-12.50 per unit to restrict the additional subsidy at PKR 335 billion for the current fiscal year.[7] The IMF review mission has further rejected Pakistan’s revised Circular Debt Management Plan (CDMP), calling for an increase in the circular debt to the tune of ₹952 billion for the current fiscal year against an earlier projection of ₹1,526 billion.[7]
0. “IMF Is Giving Pakistan ‘Tough Time' on Bailout, Premier Says (1)” Bloomberg Tax, 3 Feb. 2023, https://news.bloombergtax.com/daily-tax-report-international/imf-is-giving-pakistan-tough-time-on-bailout-premier-says-1
1. “Pakistan crisis: IMF bailout conditions ‘beyond imagination,’ says Prime Minister Shehbaz Sharif” Business Today, 3 Feb. 2023, https://www.businesstoday.in/latest/world/story/pakistan-crisis-imf-bailout-conditions-beyond-imagination-says-prime-minister-shehbaz-sharif-368827-2023-02-03
2. “Ahead of crucial talks, IMF spots PKR 2 trillion breach in Pakistan’s budgetary estimates” The Hindu, 28 Jan. 2023, https://www.thehindu.com/news/international/ahead-of-crucial-talks-imf-spots-pkr-2-trillion-breach-in-pakistans-budgetary-estimates/article66443172.ece
3. “‘Harsh' IMF conditions alarm those at the helm” DAWN.com, 4 Feb. 2023, https://www.dawn.com/news/1735202
4. “Pakistan set to bow to IMFs demands as forex reserves drop to $3.08 bn” Business Standard, 4 Feb. 2023, https://www.business-standard.com/article/international/pakistan-set-to-bow-to-imf-s-demands-as-forex-reserves-drop-to-3-08-bn-123020400505_1.html
5. “World News” LatestLY, 1 Feb. 2023, https://www.latestly.com/agency-news/world-news-pak-govt-may-withdraw-energy-subsidies-reduce-security-costs-to-secure-imfs-approval-for-economic-bailout-report-4783823.html
6. “If You Want Money, Then Cut Down on Defence Expenses, IMF Tells Pakistan Over Stalled Loan Plan” News18, 31 Jan. 2023, https://www.news18.com/news/world/if-you-want-money-then-cut-down-on-defence-expenses-imf-tells-pakistan-over-stalled-loan-plan-6957487.html
7. “MyIndMakers” MyIndMakers, 2 Feb. 2023, https://myind.net/Home/viewArticle/imf-rejects-pakistans-circular-debt-management-plan
