The International Monetary Fund (IMF) has stated unequivocally that the loan programme under the Extended Fund Facility (EFF) will not be revived unless oil and electricity prices are increased. The Pakistani delegation, on the other hand, has asked for more time to withdraw the subsidy.
The delegation would meet with Prime Minister (PM) Shehbaz Sharif to discuss it. Both parties have agreed to continue discussions. Apart from the withdrawal of the subsidy, officials claim that all other issues have been resolved.
Pakistan was unable to persuade the IMF despite a week of discussions in Doha, Qatar, from May 18 to May 25.
IMF postponed the rollback of Pakistan’s stalled $6 billion External Financing Facility (EFF) programme late Wednesday as the government hoped that the revival would bring stability to the financial markets, the rapid weakening of the local currency with depleting foreign exchange reserves.
In a statement, the Fund underlined the elimination of petroleum and energy subsidies, among other conditions, as a prerequisite for the program’s restoration. Following the conclusion of the talks, Nathan Porter, the IMF Mission Chief for Pakistan, stated that the Fund held meaningful talks with Pakistani representatives.
“The Mission has engaged in highly constructive discussions with Pakistani authorities in order to reach an agreement on policies and reforms that will lead to the completion of the awaiting seventh evaluation of the authorities’ reform programme, which is backed by an IMF Extended Fund Facility arrangement”.
As per Porter, significant progress was made during the mission, including the need to continue addressing massive inflation and rising fiscal and current account shortfalls, whereas ensuring sufficient protection for the weakest.
The Fund also lauded the State Bank of Pakistan’s (SBP) decision to raise the policy rate from 12.25 per cent to 13.75 per cent in order to combat rising inflation. However, the mission chief noted that there were fiscal deviations from the policies agreed upon in the previous review, reflecting in part the fuel and power subsidies announced by the authorities in February.
The PTI-led government initially concurred to increasing the prices of energy and petroleum products, but Imran Khan announced a subsidy on both commodities later in March, and the present government is proceeding with the same arrangement.
As per Porter, the IMF team highlighted the importance of tangible policy actions, including the removal of fuel and energy subsidies and the FY2023 budget, to achieve programme objectives. He went on to say that the IMF team is looking forward to proceeding with its discussion and close engagement with the Pakistani government on policies to ensure price stability for the benefit of all Pakistanis.
