Tag: International Monetary Fund

IMF likely to announce staff level agreement with Pakistan by this week

According to Syed Naveed Qamar, the Federal Minister for Commerce, Pakistan has taken all necessary measures to unfreeze a $6.5 billion credit line and is expected to reach a staff level agreement (SLA) on Extended Fund Facility (EFF) with the International Monetary Fund (IMF) this week.

Dr Aisha Ghaus Pasha, the Minister of State for Finance, stated that Pakistan and the IMF are close to reaching an SLA, but that basic structural reforms are necessary regardless of whether they are part of the IMF program or not.

After the formal announcement, Pakistan will receive a $1.2 billion tranche under the EFF. Qamar stated that the agreement would give investors and creditors confidence in Pakistan’s stabilising economy and that their money would remain protected.

Qamar emphasized that the IMF program is the beginning of other funds flowing in and that increased imports would benefit exports.

However, Pakistan is struggling to meet the tough conditions set by the IMF, such as increasing its low tax base, ending exemptions for the export sector, and raising artificially low energy prices. The country is in dire need of funds as the State Bank of Pakistan-held foreign exchange reserves only cover one month of imports.

To meet IMF conditions, Pakistan has raised taxes, cut subsidies, and devalued its currency. Additionally, a supplementary finance bill was approved that increases sales tax from 17 per cent to 25 per cent on imports and raises general sales tax from 17 per cent to 18 per cent, increasing the burden on already inflation-stricken people.

February 23, 2023
National Assembly passes mini-budget to meet IMF targets

The National Assembly of Pakistan passed the Finance (Supplementary) Bill, 2023, aimed at amending certain laws relating to taxes and duties. The bill is intended to generate an additional Rs170 billion within the next four and a half months, to fulfill the last prior actions agreed upon with the International Monetary Fund (IMF).

Pakistan’s reserves have fallen to a critically low level of $2.9 billion, which experts believe is sufficient for only 16 to 17 days of imports. The completion of the ninth review of a $7 billion loan programme with the IMF would lead to a disbursement of $1.2 billion, as well as unlock inflows from friendly countries.

The Finance Minister, Ishaq Dar, introduced the bill to the National Assembly on February 15, and the formal debate started on it after moving a motion by Commerce Minister Syed Naveed Qamar on February 17. In his concluding speech during the NA session, Dar said the new taxes proposed in the bill would not affect the poor segments of society, as most of the new taxes are being imposed on luxury items that they don’t use.

The government has also proposed an increase of Rs40 billion in the budget of the Benazir Income Support Programme (BISP) to help the poor cope with rising inflation.

The Finance Bill aims to increase the general sales tax (GST) rate from 17 per cent to 18 per cent, with an increase to 25 per cent on luxury items. The bill proposes to raise the federal excise duty (FED) on cigarettes, and aerated and sugary drinks. GST on 33 categories of goods covering 860 tariff lines, including high-end mobile phones, imported food, decoration items, and other luxury goods, will increase from 17 per cent to 25 per cent, however, the raise will be notified through another notification.

The excise duty on cement has been raised from Rs1.5 to Rs2 per kilogram, a measure expected to generate an additional Rs6 billion. An excise tax of 10 per cent has been proposed on non-aerated drinks like juices, including mango and orange, to raise an additional tax of Rs4 billion.

The finance bill also proposed a 10 per cent withholding tax on functions and gatherings held in marriage halls, marquees, hotels, restaurants, commercial lawns, clubs, community places, or other places, expected to raise Rs1 billion to Rs2 billion from this tax. The excise duty on carbonated or aerated drinks has been raised to 20 per cent from 13 per cent to generate an additional Rs10 billion for the government.

The proposed increase in excise duty on business, first, and club-class air tickets will raise an additional Rs10 billion for the government, with a tax rate of 20 per cent (or Rs50,000, whichever is higher) proposed on the value of air tickets.

February 21, 2023
Pakistan’s current account deficit drops by over 90% amid import restrictions

According to data released by the State Bank of Pakistan (SBP) on Monday, Pakistan’s current account deficit in January 2023 reduced by 90.2 per cent to $0.24 billion, compared to $2.47 billion in the same month last year.

The decrease in deficit is attributed to the persisting import restrictions, which have been implemented due to the balance of payments crisis that has pushed the country towards default.

However, the shrinking current account deficit is a result of critically low forex reserves, which stood at $3.2 billion as of February 10, barely enough to cover three weeks of imports.

To prevent dollar outflows, the government has limited imports of essential food and medicines until the International Monetary Fund (IMF) provides a bailout to the country.

The government’s strategy of import restrictions has affected industries that rely on imported inputs to continue their operations, leading to a suspension of operations or downsizing production levels and causing layoffs.

During January, the country’s imports stood at $3.92 billion, a decrease of 7.3 per cent from the previous month, while exports fell to $2.21 billion, a decrease of 4.29 per cent from December’s $2.31 billion. Workers’ remittances in January 2023 amounted to $1.89 billion, which is a decline of 9.89 per cent compared to December’s $2.1 billion.

During the first seven months of the current fiscal year, the country’s current account deficit stood at $3.8 billion, representing a 67.13 per cent decline from July-Jan FY22.

February 20, 2023
IMF chief wants the poor people of Pakistan to be protected

In a recent interview with an international broadcaster, Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), called for Pakistan to distribute subsidies more fairly, redirecting resources from the wealthy to those in need. Georgieva urged the country to increase tax revenues from those who are making good money, both in the public and private sectors, to contribute to the economy.

The IMF is keen for Pakistan to function effectively as a country and avoid dangerous levels of debt, which could lead to the need for debt restructuring. Georgieva expressed concern for the people of Pakistan, who have been devastated by floods affecting one-third of the population.

The IMF has recommended that Pakistan broaden its narrow tax base, with only 3.5 million return filers out of a population of over 200 million. The lender has also called for the removal of untargeted subsidies and the redirection of resources towards the poor, including the Benazir Income Support Programme (BISP), for which the government has increased the allocation from Rs360 billion to Rs400 billion to protect the poorest from inflationary pressures.

The IMF’s review mission has made it clear that Pakistan must undertake tax revenues from all those who possess income to contribute to the national kitty.

Pakistan faces a looming balance of payment (BoP) crisis, with external debt servicing of $27 billion required in the next financial year. The ongoing IMF programme of $6.5 billion under the Extended Fund Facility (EFF) is due to expire on June 30, 2023, and there is no possibility of any further extension in the ongoing EFF arrangement.

The IMF could help Islamabad overcome the crisis by ensuring that the country can pay its debt obligations without plunging into default. The revival of the IMF programme will be a pre-requisite step for seeking any debt restructuring, so the government is currently focusing on it.

February 20, 2023
IMF urges Pakistan to increase interest rate to move towards positive trajectory

The State Bank of Pakistan (SBP) and the International Monetary Fund (IMF) recently engaged in discussions concerning the possibility of tightening monetary policy and increasing foreign exchange reserves by the end of June 2023.

As of February 10, 2023, Pakistan’s foreign exchange reserves held by the SBP stood at $3.1 billion, reflecting a $276 million increase. This was largely due to improved liquidity resulting from the reduction of discrepancies between the inter-bank and open markets following adjustments of the exchange rate.

In accordance with the IMF’s recommendation to increase foreign exchange reserves to $12 billion by the end of June 2023, Pakistan will need to secure at least $17-18 billion over the next four-and-a-half months. This amount encompasses external debt repayment obligations of $5 billion, current account deficit (CAD) financing of $3-4 billion, and foreign exchange reserve building of $8-9 billion.

If Pakistan’s proposal is approved by the IMF, it will require inflows of $11-12 billion in order to meet foreign debt servicing, CAD financing, and foreign exchange reserve building up to $6-$7 billion by the end of June 2023. The IMF has also suggested raising the policy rate by 300 to 400 basis points to shift towards a positive interest rate trajectory. However, SBP officials have asserted that the Monetary Policy Committee (MPC), established under the SBP Amendment Act, is empowered to make decisions based on macroeconomic fundamentals.

According to a senior official of the finance ministry, Pakistani authorities are hoping to reach a staff-level agreement with the IMF’s review mission next week before the IMF executive board meeting in four to six weeks. Nevertheless, there is still a discrepancy on external financing projections.

Pakistan has implemented tough measures, including increasing electricity and gas tariffs, imposing taxes worth Rs170 billion through a mini-budget, adopting a market-based exchange rate, and raising POL prices. While these steps were in the hands of Pakistani authorities, the most critical aspect now is securing confirmation from multilateral and bilateral creditors to meet the program period’s substantial external financing requirements. The EFF program is set to expire on June 30, 2023, with no possibility of extending it further.

The IMF is pressing for a gross foreign exchange reserves target of up to $11-$12 billion by the end of June 2023, whereas Pakistan is requesting a target between $6 and $8 billion, given the possibility of reduced confirmation from bilateral partners. Both sides agree that reaching a gross foreign exchange reserves position of $16.2 billion by the end of June 2023, as requested during the finalization of the 7th and 8th reviews under the $6.5 billion EFF arrangement, is not feasible.

The Pakistani side seeks a 50 per cent reduction in the target for the end of the program period, but the IMF insists on obtaining confirmation from all possible sources. Finance Minister Ishaq Dar is currently in Dubai, attempting to secure approval from multilateral and bilateral creditors as well as commercial banks to obtain the required dollar inflows support for the IMF program’s revival.

February 18, 2023
Pakistan’s forex reserves increase by 9%, cross $3 billion mark

After declining for three weeks in a row and losing a cumulative $1,685 million during that period, the foreign exchange reserves held by the State Bank of Pakistan (SBP) have rebounded, according to a statement from the central bank.

As of February 10, SBP’s foreign currency reserves totaled $3,192.9 million, which is up $276 million from the previous week. This increase represents a gain of over 9 per cent and has broken the streak of declining reserves.

However, even with this increase, the amount is still only enough to cover one month of imports. Meanwhile, the net forex reserves held by commercial banks are $5,509.3 million, which is $2,316.4 billion more than SBP, bringing the total liquid foreign reserves of the country to $8,702.2 million. The statement did not provide a specific reason for the increase in SBP-held reserves.

Pakistan’s economy is in dire straits due to a balance-of-payments crisis, political chaos, and deteriorating security. The government has banned all but essential food and medicine imports until it receives a crucial loan tranche from the International Monetary Fund (IMF), which could unlock other sources of funding for the country.

Inflation has risen sharply, the rupee has declined, and the country is struggling to afford imports, which has caused a severe decline in its industry. Pakistan is no longer issuing letters of credit, except for essential food and medicine, since January, which has led to a backlog of raw material imports that the country can no longer afford.

According to Geo, the rupee devaluation and the logjam have resulted in a significant decline in manufacturing, including textiles and steel, and building projects.

While the IMF cash injection alone will not be enough to rescue Pakistan, the government hopes that it will boost confidence and pave the way for other friendly countries like Saudi Arabia, China, and the UAE to offer additional loans.

February 17, 2023
Govt increases petrol price by Rs22 to a historic high of Rs272 per litre

In an effort to satisfy the International Monetary Fund (IMF) and secure a crucial loan tranche, the federal government has raised the price of petrol to a historic high. This move comes mere hours after the introduction of a tax-laden “mini-budget”.

Petroleum division confirmed that the price of petrol has increased by Rs22.20 to reach Rs272 per litre, citing the devaluation of the rupee relative to the dollar as the primary reason for the surge.

The revised petrol prices are effective from 12 am tonight.

Following an increase of Rs17.20, the cost of high-speed diesel has risen to Rs280 per litre. Similarly, kerosene oil is now priced at Rs202.73 per litre after a hike of Rs12.90, while light diesel oil is available at Rs196.68 per litre after an increase of Rs9.68.

It is noteworthy that the surge in the prices of petroleum products was a requirement set by the lending organization based in Washington, which could result in a further escalation of the already record-high inflation. This development is compounded by the recent implementation of new fiscal measures via the ‘mini-budget’.

February 16, 2023
Ishaq Dar presents mini-budget in National Assembly to meet IMF conditions

A crucial tax amendment bill to fulfil the conditions of the International Monetary Fund (IMF) to revive a stalled loan programme that the country needs to stave off default was presented in both houses of parliament on Wednesday.

Finance Minister Ishaq Dar introduced the Finance (Supplementary) Bill 2023 first in the National Assembly and then in the Senate.

The Pakistani government approved a proposal last night to increase the general sales tax (GST) rate from 17 to 18 per cent and to raise the Federal Excise Duty (FED) on cigarettes. The aim is to generate an additional Rs115 billion out of Rs170 billion, which was agreed upon by Pakistan in accordance with the IMF conditions.

Through the implementation of the “mini-budget,” led by the Pakistan Democratic Movement (PDM)-led government, the country intends to reduce the budget deficit and enhance its tax collection efforts to meet the conditions set by the IMF, a Washington-based lender.

The National Assembly will not be referring the bill to the Standing Committee on Finance and Revenue for further review, while the Senate has sent the legislation to the relevant committee. Officials at the Ministry of Finance have stated that they anticipate the bill to be passed by Thursday morning, which will allow for the receipt of funds not only from the IMF but also from other multilateral and bilateral sources.

Last week, Pakistan and the International Monetary Fund (IMF) were unable to reach an agreement, and the visiting IMF delegation left Islamabad after 10 days of talks. However, negotiations are set to continue. The Pakistani economy, valued at $350 billion, is in dire need of financial assistance as it grapples with a severe economic crisis.

In an effort to appease the IMF, the government initially intended to implement the fiscal measure via an ordinance. However, President Dr Arif Alvi recommended that the administration obtain the parliament’s approval instead.

During his address to the lower house, Finance Minister Dar highlighted the unprecedented crises the nation is currently facing due to the “substandard” policies of the Pakistan Tehreek-e-Insaf (PTI) government. In contrast, the country had experienced economic growth during the previous government led by the Pakistan Muslim League-Nawaz (PML-N), during which the Gross Domestic Product (GDP) had increased by $112 billion.

“The PML-N always tries to take fewer loans. Foreign investment had also increased during PML-N’s tenure. In contrast, during the PTI’s government, the loans hit record highs, and a common man’s income also plunged.”

According to Geo, the finance minister stated that in addition to the challenges that the current government is confronting as a result of the Pakistan Tehreek-e-Insaf’s (PTI) policies, the country suffered losses exceeding $8 billion due to last year’s floods.

“But, we should always prefer the state over politics,” he reiterated — the mantra that PDM leaders have time and again propagate as they face an uphill task on the economic front.

This is a developing story…

February 15, 2023
Rs170 billion in taxes to be imposed through mini-budget for revival of IMF loan program

The Minister of Finance, Ishaq Dar, has announced that the talks between Pakistan and the International Monetary Fund (IMF) have concluded positively. In order to revive the loan program, the government will be required to implement a mini-budget, which includes collecting approximately Rs170 billion in taxes.

During a media briefing, the finance minister confirmed receipt of the draft of the Memorandum of Economic and Financial Policies (MEFP) from the IMF based in Washington. At the outset of his media address, the minister emphasized that the current government is continuing to implement the program signed by former Prime Minister Imran Khan with the IMF in 2019-2020, and that the talks are being held as a “sovereign commitment” under the leadership of Shehbaz Sharif.

“This is an old agreement which had been suspended and delayed previously,” he noted.

Regarding the discussions between Pakistan and the IMF mission, the finance minister stated that the talks, which lasted for ten days, were comprehensive and covered a range of topics including the power and gas sectors, as well as the fiscal and monetary aspects.

“The SBP governor and officials from different departments and ministries participated in the talks,” said Dar.

Finance Minister Ishaq Dar has shared details of the agreement reached with the IMF regarding the country’s financial situation. The finance minister confirmed that taxation measures of Rs170 billion will be taken, dispelling rumors of a larger figure of Rs700-800 billion.

Dar highlighted that reforms in the energy sector will be a key focus, aimed at curbing the flow of circular debt, particularly in the gas sector where efforts will be made to bring the circular debt to zero and minimize untargeted subsidies.

The minister acknowledged that some of the reforms suggested by the IMF are beneficial for Pakistan and emphasized the need for reforms in the country. He added that Prime Minister Shehbaz Sharif has assured the IMF of the government’s commitment to implement the necessary reforms.

As per the standard procedure, a MEFP and a letter of intent are given. “The government has received the MEFP draft this morning and we will go through it on the weekend. A virtual meeting with the IMF will be held after that on Monday,” he added.

“We believe that there are some sectors that need to be reformed in Pakistan’s interest,” he said.

The Minister of Finance, in a statement, indicated that the country’s economy is facing significant challenges, with its current ranking standing at 47. The minister attributed the economic struggles to poor governance and mismanagement, and emphasized the need to address and rectify the situation.

In reference to the power sector, the finance minister noted that a large portion of the national budget, approximately Rs3,000 billion, is spent on electricity generation, however, the recovery rate for these expenditures is only Rs1,800 billion. This highlights the pressing need for reforms and improvements in the sector to enhance efficiency and ensure sustained economic growth.

“Even though these reforms are painful but we will have to implement them,” he maintained.

He said that the government had decided that Pakistan will complete the IMF’s programme for the second time.

“Pakistan will get $1.2 billion after the approval of IMF’s Executive Board.”

The Minister of Finance announced that it has been determined to increase the budget of the Benazir Income Support Program (BISP), bringing it to a total of Rs400 billion. This increase is aimed at mitigating the impact of inflation on the most vulnerable segments of society.

Regarding the declining foreign currency reserves, the minister provided reassurance that efforts are underway to boost them. The minister credited the State Bank of Pakistan (SBP) with managing the situation and noted that support from friendly countries has also been secured through commitments.

“Pakistan had made big payments to countries during this time, and once the programme is finalised, we will get the amount back,” said Dar.

The Minister of Finance criticized the previous administration for the credibility gap in the country’s reputation, stating that the lack of trust from the IMF is a result of the previous government’s failure to implement reforms, and even reversing them during a period of political instability.

“This has negatively portrayed Pakistan’s image and this has affected the recent talks as [the IMF] is not sure if we would agree to it,” he added.

He added that the government refused to impose sales tax on petrol and the IMF conceded it. “It was mutually agreed that there will be no sales tax on petroleum products,” he said. He added that the general sales taxes will be added to the Rs170 billion.

Dar said that it is necessary to recover Rs170 billion in taxes within the current fiscal year, within a period of four months.

February 10, 2023
Everything is going alright with IMF, says Ishaq Dar

Finance Minister Ishaq Dar said on Thursday that it is expected that the matters between the government and the International Monetary Fund (IMF) regarding the conclusion of the 9th review of the $7 billion loan program will be settled today.

“Everything is going alright,” replied the finance minister when asked about the status of the discussions with the visiting IMF delegation. “The final round is currently underway. I have daily meetings with the IMF team and will do so again today,” he added.

“It is expected matters will be settled today,” Dar said. “We will give you the news very soon.”

A delegation from the IMF, led by Nathan Porter, has arrived in Islamabad for discussions surrounding the completion of the ninth review. The discussions are set to conclude on the same day.

The successful completion of the review would result in the disbursement of $1.2 billion from the IMF and also unlock additional funding from friendly nations and other multilateral lenders, which is crucial for Pakistan to avoid default.

Minister of State for Finance and Revenue Aisha Ghaus Pasha informed journalists on Wednesday that the government and the IMF are in close proximity to finalizing the Memorandum of Economic and Financial Policies (MEFP).

Minister of State for Finance and Revenue Aisha Ghaus Pasha stated that the Memorandum of Economic and Financial Policies (MEFP) would be delivered to Pakistan by the IMF once all issues have been resolved. The Minister noted that significant progress had been made, but added that the IMF was seeking clarification on certain aspects, which the government team is working to address.

In a written statement, the ministry said the talks with the IMF continued on Wednesday and “focused on fiscal table, financing, etc. There is a broad consensus on the reform actions and measures”.

Additionally, the mission chief also held a meeting with the finance minister to provide an update on the discussions. “The mission is working on putting it all together and will finalise the MEFP,” stated the finance secretary, who declined to comment on the possibility of extending the scheduled talks in order to reach a staff-level agreement.

According to Dawn, it is of utmost importance for Pakistan to reach a agreement with the IMF, as the foreign exchange reserves have depleted to a low of $3.09 billion as of January 27th, which is only sufficient to cover 18 days’ worth of imports.

February 9, 2023