IMF says 'substantial progress' by Pakistan toward loan programme

Staff-level agreement will follow once the few remaining points are closed, says IMF’s resident representative

The International Monetary Fund (IMF) said that Pakistan has made "substantial progress" toward meeting policy commitments needed to unlock loans the country needs to avoid default, Bloomberg News reported on Monday.

The international lender said Pakistan has a few more tasks before it can unlock a $6.5 billion loan to avoid a default, putting pressure on the government to secure assurances from countries that have promised financing support.

Pakistan is now the only South Asian country that’s yet to secure a bailout from the multilateral lender as Sri Lanka clinched financing this week and Bangladesh pushes on with carrying out IMF-mandated reforms.

“A staff-level agreement will follow once the few remaining points are closed,” the report quoted Esther Perez Ruiz, the IMF’s resident representative for Pakistan, as saying. “Ensuring there is sufficient financing to support the authorities in the implementation of their policy agenda is the paramount priority.”

Finance Minister Ishaq Dar said last week that the IMF wanted to see countries finalise commitments they’ve made to help Pakistan shore up its funds before signing off on the bailout package. Pakistan needs to repay about $3 billion of debt by June, while $4 billion is expected to be rolled over.

The country has taken tough measures including increasing taxes and energy prices, and allowing its currency to weaken to restart a $6.5 billion IMF loan package. The funds will offer some relief to a nation still reeling from a dollar shortage that has raised the probability of the economy slipping into a recession ahead of elections this year.

Read more: Govt’s subsidy plan raises red flags

Sources in the finance ministry told The Express Tribune that the global lender has inquired about the source of financing of the Prime Minister’s petrol scheme. The IMF also asked about the mechanism in implementing the new subsidy programme, they added.

In her reaction, Esther Perez, the Resident Representative of the IMF, told The Express Tribune that the Pakistani “authorities did not consult with the IMF staff ahead of announcing their recent fuel subsidy proposal”.

She added that the IMF staff was seeking “greater details on the scheme in terms of its operation, cost, targeting, protections against fraud and abuse, and offsetting measures, and will carefully discuss these elements with the authorities”.

“As a general matter, the IMF sees strengthening support for those eligible for social assistance through the unconditional Kafalat cash transfer scheme (BISP) as the most direct way to help the neediest in Pakistan,” said Esther.

The federal government plans to collect Rs50 per litre extra from car owners of above 800cc category and give it to car owners of below 800cc and motorcyclists.

Ruiz said the Washington-based lender wasn’t consulted on the government’s plan to raise fuel prices for wealthier motorists to finance a subsidy for lower-income people.

Also read: Govt enhances petrol subsidy to Rs100 per litre

“Fund staff are seeking greater details on the scheme in terms of its operation, cost, targeting, protections against fraud and abuse, and offsetting measures, and will carefully discuss these elements with the authorities,” she said.

This is not the first time petrol price subsidies have been a sticking point for IMF. The previous government led by former premier Imran Khan had given out petrol subsidies, which stalled the IMF programme last year.

The government should have taken the IMF into confidence before announcing such a scheme, said Tahir Abbas, head of research at Karachi-based Arif Habib Ltd. “The fuel subsidy could further delay the much-awaited resumption of the loan programme.”

While addressing a news conference on Monday, Minister of State for Petroleum Musadik Malik said that the government will charge Rs100 more for petrol from the affluent so that relief could be provided to the low-income segments in fuel tariff.

The government considers an owner of 1,000cc car “affluent” but it does not have the guts to slap taxes on the richest landlords and retailers.

While talking to The Express Tribune, Malik said that the owners of above 800cc cars will pay a higher price of Rs50 over and above the normal OGRA-determined petroleum products prices, which will be utilised to reduce the rate for the low-income consumers.

The per litre petrol price is Rs273, which will be increased to Rs323 at the current rates for the car owners of using above 800cc to help the PML-N and its allied parties to win the next general elections.

Due to fears that PTI Chairman Imran Khan will clean sweep, the government is dragging its feet from holding the elections and has now placed its bets on the middle- and upper-middle income groups to lure votes from the lower-middle income groups through such schemes.

In the words of a senior PML-N party leader, the cross-fuel subsidy is a double-edged sword for the government.

The state minister explained that an escrow account will be opened with the National Bank of Pakistan and the dealers claims of subsidised fuel will be settled on a daily basis.

He added that the beneficiaries will be registered against the national identity card numbers who will receive a one-time-password to claim the cheaper fuel.

A motorcyclist will receive a maximum 21 litre per month cheaper fuel with a daily cap of 3 litre while an 800cc car owner will get a maximum 30 litre per month of petrol, said Malik.

The petrol subsidy programme would be implemented within the next six weeks without any provision of subsidies being paid from the budget, said Malik.

(With additional input from Reuters and Bloomberg)