Economic diktat: Islamabad meets all IMF conditions for $7.3b loan

The terms were met on the last day of the deadline.

ISLAMABAD:

Pakistan has met all prior conditions imposed by the International Monetary Fund (IMF) for qualifying for a loan of up to $7.3 billion.

In order to meet the last outstanding action, the federal government had advised the State Bank of Pakistan (SBP) to immediately purchase $100 million from the open market to build up foreign currency reserves, as desired by the IMF, said sources in the finance ministry.

The conditions were met on the last day of the deadline that expired on Tuesday. The IMF’s Executive Board will approve the loan next month.

The IMF has asked Pakistan to mop up dollars from the market, as the country’s net foreign reserves excluding forward contract liabilities and the IMF’s immediate liabilities, have slipped into negative, they added. The SBP’s intervention in the market is likely to bring the rupee under further pressure that has already been traded at the lowest level against the greenback.



The net reserves, held by the SBP, stood at $5.2 billion as on August 2.

Out of that, the SBP owes $2.4 billion in forward contracts, while the IMF’s immediate liabilities have been estimated at over $3 billion. Pakistan is going to make about $395 million payments to the IMF on August 26 as part of repayments of earlier borrowed amount.

The SBP’s spokesman Umar Siddique was not immediately in a position to confirm whether the central bank started purchasing dollars. SBP Governor Yaseen Anwar did not respond to the question. But a senior finance ministry official confirmed that $100 million prior action was also met.

Finance Minister Ishaq Dar confirmed on Tuesday that Pakistan met all prior actions for a fresh bailout package. Without specifying the action, Dar said the SBP was also advised on Tuesday to take the last remaining action.

After fulfilling the prior actions, the agenda for request of Pakistan’s loan will be circulated among the members of the IMF Executive Board today (Wednesday), said Dar. He said this will pave the way for approval of loan in the first week of September. The Board has to be notified two weeks before the meeting.



Pakistan requested for $7.3 billion assistance but the IMF management has so far indicated at approving $6.6 billion. Islamabad has so far remained unable to convince the IMF to release the tranches upfront, facilitating it to repay the earlier borrowed amount without further stretching the already thin foreign currency reserves.

The IMF is also seeking 100 basis points increase in discount rate – a rate at which the SBP lends money to commercial banks, the sources said. The SBP is likely to take a decision in this regard in its upcoming meeting.

Pakistan also fulfilled the condition of increasing power tariffs to reduce the subsidies. It has already almost withdrawn subsidies for the industrial sector by increasing tariffs up to 96% while significantly reducing subsidies for the commercial consumers. It announced to increase power tariffs for domestic consumers from October but, according to some media reports, it raised domestic consumer tariffs by 15% from August.

A shortfall in tax collection and declining electricity bills collection are said to be the reasons behind increase in domestic tariffs from August. The government also met the condition of stopping the SBP intervention in the exchange market and let the rupee depreciate against the US dollar.

There has been some confusion over the prior action of seeking Council of Common Interests (CCI) approval for creating surpluses by the provincial governments. Earlier, finance ministry spokesman Rana Assad Amin said the CCI gave approval for Rs117 billion savings by all provinces. The Sindh and Khyber-Pakthunkhwa finance ministers later refused that any such understanding was reached at the CCI forum. However, the officials claimed that this issue was also amicably settled to the satisfaction of the IMF.

The government has also started sending notices to the tax evaders – as part of the IMF’s conditions.

Published in The Express Tribune, August 21^st, 2013.