Former Treasury Secretary Shaukat Tarin said Monday that the International Monetary Fund (IMF) would make the release of funds conditional on meeting previous conditions, including removing exemptions and subsidies on various items and raising income taxes.
Pakistan and the IMF are currently busy reviving the stalled Extended Fund Facility (EFF) with various items on the agenda including the hotly debated fuel subsidy. The revival of the program is crucial for Islamabad, whose foreign exchange reserves held by the central bank have fallen to less than two months of import coverage.
Tarin said on Twitter that the international lender would tie the release of the tranches — worth about $900 million — to lifting subsidies on oil, electricity, fertilizers, pesticides and provident funds, while raising income taxes on salaried employees Group.
“We had postponed those to next fiscal year,” Tarin said, adding that aid from allies like China and Saudi Arabia was also subject to those conditions.
Pakistan-IMF talks are expected to take place from May 18, 2022 amid uncertainty in domestic markets over Islamabad’s willingness to comply with the differing terms.
While many experts believe the country must meet IMF requirements, with haul fuel subsidies topping the list, the weak coalition government and its previous inability to make tough decisions have unleashed a wave of uncertainty. The situation has also affected other sources of foreign exchange.
Last week Finance Minister Miftah Ismail said the government would face losses of 102 billion rupees from fuel subsidies in May alone. While Pakistan appears to have agreed with the IMF to hike oil prices, the finance minister has hinted at providing targeted subsidies to minimize the impact on inflation.
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The foreign exchange reserves of the South Asian country have also fallen massively in recent months due to imports and debt payments.
Foreign exchange reserves held by the State Bank of Pakistan (SBP) fell another $59 million to $10.5 billion, the central bank said on Friday, with levels remaining at less than two months of import coverage.
The revival of the program paves the way for a $900 million tranche as well as other funding sources, with Islamabad also seeking to extend the duration and size of the $6 billion EFF.
Time is running out
The IMF program may be crucial, but Pakistan’s economic problems run deep