Pakistan likely to clinch IMF deal 'any day now', says commerce minister

IMF expected to announce staff level agreement on EFF by this week, Naveed Qamar tells Bloomberg

ISLAMABAD:

Federal Minister for Commerce Syed Naveed Qamar said Wednesday that the International Monetary Fund (IMF) is likely to announce its staff level agreement with Pakistan on the Extended Fund Facility (EFF) by this week.

"Pakistan has taken all the measures needed to unfreeze a $6.5 billion credit line and expects to clinch the deal any day now," the minister said in an interview with Bloomberg.

Earlier this month, the country's top finance officials concluded the ninth review of the stalled $6.5 billion bailout package with the IMF staff but failed to reach a crucial staff-level agreement to unlock the much-needed credit line for the ailing economy.

However, both sides agreed to a set of measures that could still help clinch the deal.

'Pakistan to fulfil all financial obligations'

The IMF funds are critical for the $350 billion economy, which is facing a severe balance of payments crisis. The country is scheduled to pay its sovereign debt obligations later this year as fears increase of a possible default, with foreign exchange reserves plunging to less than a month's worth of imports.

According to estimates, the Pakistani government needs to finance roughly $5.9 billion in debt payments and current-account deficit before June.

But Pakistan's commerce minister, who is in Washington to co-chair a meeting of the Pakistan-US Trade and Investment Framework Agreement (TIFA) Council, vowed that the country would fulfill all its financial obligation at any cost.

"Come what may, we will be paying off all of our anticipated payments this year," he said in an interview.

Also read: NA passes Rs170b mini-budget to meet IMF terms

Pakistan will get a $1.2 billion tranche under the Extended Fund Facility if the global lender decides to resume the bailout package.

Qamar said the IMF agreement would give investors and creditors confidence that "Pakistan’s economy is now stabilising and (the government) has taken all the right steps, so in that sense their money would remain protected".

“The IMF program is the beginning, not the culmination, of all other monies flowing in,” he said. Once the nation boosts its reserves, a pickup in imports will also benefit exports, the minister added.

Limited reserves have restricted Pakistan’s ability to fund imports, including intermediary goods, and stranded thousands of containers of supplies at ports. The government has taken steps including increasing taxes, cutting subsidies and devaluing its currency to meet IMF conditions.

On Monday, the National Assembly passed the Finance (Supplementary) Bill, 2023—dubbed a 'mini-budget'—aimed at amending certain laws relating to taxes and duties in order to meet the terms set by the global lender.

The bill proposes new taxes worth Rs 170 billion to minimise the widening fiscal deficit.

The IMF's staff level agreement would need approval from the global lender's board before the funds can be released.

The financing package has been held up since late last year over policy issues, with the IMF requesting a series of fiscal adjustments, including the removal of subsidies, jacking up fuel prices and raising more taxes to bridge a revenue shortfall.

Pakistan has taken steps, such as raising more than 170 billion rupees ($648 million) through the supplementary finance bill passed on Monday.

Related: Tax the rich, help the poor, IMF advises Pakistan

Other measures that still need to be taken to finalise the agreement include raising interest rates, which already stand at 17%, as well as obtaining commitments for more bilateral and multilateral funding, officials say.

The fiscal adjustments demanded by the deal, however, are likely to fuel record high inflation, which hit 27.5% year-on-year in January, analysts say.

 

(With input from APP and Reuters)