What has Pakistan agreed with the IMF?

Government to raise Rs170 billion in taxes, clamp down on circular debt in an effort to unlock $1.1 b tranche

ISLAMABAD:

Pakistan has agreed with the International Monetary Fund on the conditions to release $1.1 billion in critical funding, Finance Minister Ishaq Dar said on Friday, adding that the payout was delayed due to "routine procedures".

Below are the key points Pakistani authorities say they have already reached agreement on with the IMF: The government will implement fiscal measures, including taxation, to raise Rs170 billion worth of revenue.

The government's existing commitments to increase petroleum levies will be completed. Diesel levies will be raised twice by 5 rupees per litre each time on March 1 and April 1.

Energy reforms suggested by the IMF will be discussed and approved by Pakistan's cabinet. This would include Pakistan completely slashing its circular debt - a form of public debt that builds up in the power sector due to subsidies and unpaid bills.

Eliminating circular debt entirely was not an immediate requirement. In the meantime, Pakistan would not add any circular debt related to gas.

Macroeconomic indicators

Pakistan's foreign exchange reserves have fallen to the lowest level in 10 years and cover only three weeks' worth of imports. In the week ending Feb 3, the State Bank of Pakistan foreign currency reserves shrank to $2.917 billion, down $170 million from the previous week.

Inflation

Inflation has averaged a record 25.4% in the seven months of the current fiscal year starting July versus 10.3% in the same period of the previous year. The consumer price index rose 27.5% year-on-year in January, its highest in nearly half a century.

Last month, the central bank raised its key interest rate by 100 basis points to 17% in a bid to rein in persistently high inflation, and said achieving price stability was key to attaining sustainable economic growth in the future. The bank has raised the key rate by a total 725 bps since January 2022.

Current account deficit

Pakistan's current account deficit shrank to around $400 million in December 2022 from $1.9 billion a year earlier, as the government slashed imports in a bid to avert an external payments crisis.

The rupee

The rupee reached a record low of 276.58 to the dollar in the interbank market on Feb. 3. The rupee has dropped more than 35% in the last 12 months.