IMF pushes Pakistan in a tight spot

Shares MEFP with govt, sets four tough prior conditions for revival of bailout package

ISLAMABAD:

To revive its stalled $6 billion loan programme, the International Monetary Fund (IMF) has set four tough prior conditions -- increasing electricity tariffs, the cabinet taking the decision to gradually impose Rs50 per litre petroleum levy to collect Rs855 billion, and ending the government’s role in determining the oil prices.

The demands came amid the government’s decision to seek the National Assembly’s approval on Wednesday (today) to amend the Petroleum Products (Petroleum Levy) Ordinance, 1961.

The law is proposed to be amended to slap Rs50 per litre petroleum levy on high-speed diesel, petrol, high octane blending component (HOBC), E-10 gasoline, superior kerosene oil and light diesel. It has also proposed Rs30,000 per metric tons liquefied petroleum gas levy.

The IMF has also asked Pakistan to set up an anti-corruption task force to review all the existing laws that were aimed at curbing graft in the government departments, according to sources.

After implementing the conditions, the IMF would present Pakistan’s request for the approval of the loan tranche and revival of the programme to its executive board – a process that may consume another month, the sources added.

Read Pakistan receives MEFP from IMF for 7th and 8th review: Miftah

In its draft Memorandum for Economic and Financial Policies (MEFP) document, the IMF has proposed to club the two pending programme reviews – the 7th and 8th – but did not indicate that it would also approve loan tranches of $2 billion.

The MEFP will form the basis for the staff level agreement that now Pakistani authorities will try to achieve at the earliest.
However, Finance Minister Miftah Ismail said Pakistan had received the MEFP document that showed the merger of the seventh and eighth reviews of bailout programme and the country would receive $1.9 billion loan after their approval. He has already informed Prime Minister Shehbaz Sharif about this development.

The existing IMF programme shows that the approval of the 6th and 7th review by the Executive Board of the IMF should pave the way for release of roughly $960 million worth of two loan tranches, totaling $1.9 billion. However, this schedule will be amended after the merger of the two reviews.

The sources said that in its draft MEFP document, the IMF did not mention to increase the loan tranche size to $1.9 billion. The issue of increasing the loan size will now be discussed by both the sides.

The finance minister told The Express Tribune that Pakistan had requested the IMF to double the loan tranche size to $2 billion. He said that nothing was final yet but the loan amount size could be around $1.5 billion.

Pakistan did not receive the complete MEFP and some of the important tables would be shared by the global lender in a couple of days. Pakistan and the IMF officials also held virtual discussions on Tuesday to seek further clarity on the draft MEFP.

Read Pakistan could receive up to $2b from IMF, says PM Shehbaz

The IMF’s decision to merge the 7th and 8th programme reviews was also surprising for Pakistani authorities, as no recent discussions had taken place on the topic, although Islamabad had made a request for the merger during Miftah’s visit to Washington.

In the recent past, Miftah had ruled out the possibility of the clubbing both the reviews.

Earlier, the IMF had also clubbed four reviews –second to fifth reviews- but without increasing the loan tranche size. The IMF had only given $500 million as against the $2 billion of four reviews.

The existing document showed that the 7th review was for the end December 2021 period and the 8th review was for January-March 2022 quarter.

The sources said that the MEFP has indicated that the global lender could extend the programme by June next year but there was no explicit mention.

An element of the concern was that the IMF was seeking six weeks’ time to take Pakistan’s case to the board -- a timeframe that Islamabad wished to cut down.

The IMF has asked Pakistan to end the government’s role in setting the fuel prices after the bitter experience of giving fuel subsidies of over Rs300 billion, according to the sources. The global lender has set a prior condition that the fuel prices will be deregulated and automatically adjusted to recover the actual cost of buying from the consumers. The government’s taxes will be over and above the global prices. This means the petrol price may daily change at the filling station.

At present, the government fortnightly determines the fuel prices -- a discretion that the IMF now wants to be ended.

The IMF has set prior action of notifying over Rs3.50 per unit increase in electricity prices from July. The Economic Coordination Committee (ECC) of the cabinet has already approved to increase the electricity tariffs by Rs7.91 per unit in three phases but its final notifications remained pending.

Pakistan has committed to the IMF to impose Rs10 per litre petroleum levy on petrol and diesel from July 1.
The IMF has asked Pakistan to seek and communicate the cabinet’s nod to further increase the petroleum levy by Rs10 per litre on petrol and Rs5 on diesel from August 1.

The revised budget documents that the government presented in the National Assembly on Tuesday showed that the petroleum levy target has now been set at a record Rs855 billion –up from Rs750 billion proposed on June 10.

The government has also made adjustments in expenditures and the total size of the budget is now Rs9.6 trillion.

The IMF has also set the condition that Pakistan should review its anti-corruption laws. The condition has been imposed after the recent amendments to the accountability law that unsettled the global lender.

However, these amendments were necessary to put a check on the National Accountability Bureau (NAB) that has crippled decision making as well as the mishandling of the bureaucracy, politicians and business circles.