IMF to decide $2.3b package on May 9
The International Monetary Fund (IMF) on Tuesday announced it would consider Pakistan's request for approval of a $2.3 billion package on May 9, including the approval of the 26th new climate programme, providing markets with clarity on the continuity of IMF-Pakistan relations.
Subject to the board's approval, the IMF will immediately disburse a $1 billion second loan tranche under the $7 billion Extended Fund Facility (EFF). The board is also expected to approve a new $1.3 billion Resilience and Sustainability Facility (RSF), though disbursements under the RSF will be linked to the implementation of around 13 conditions, including the imposition of a carbon levy from July.
According to the IMF's board calendar, Pakistan's case is scheduled for the board meeting on May 9. The agenda includes the first review under the EFF, a request for modification of performance criteria, and an arrangement under the RSF.
Pakistan has fulfilled most of the conditions set by the IMF for the July-December period but fell short on a few, requiring the board to approve certain waivers to unlock the second loan tranche of $1 billion.
This time, India is expected to vote against Pakistan's request due to a heightened security situation and concerns over a perceived "imminent" threat. It is pertinent to note, however, that Indian opposition in the IMF board cannot stop the approval of the tranche.
Pakistan and the IMF reached a staff-level agreement on March 27 to conclude the second review and to initiate the 26th financing facility.
Prime Minister Shehbaz Sharif had earlier pledged that the 25th EFF would be the country's last IMF programme. However, the RSF loan will now be disbursed over a 28-month period.
Pakistan's official gross foreign exchange reserves have declined again to $10.2 billion following a $1.3 billion debt repayment to a Chinese commercial bank. The disbursement of the IMF tranche will push reserves above $11 billion ahead of further scheduled repayments to Chinese lenders.
To qualify for the new programme, Pakistan has agreed to impose a carbon levy from July this year and to increase water usage charges starting next yearkey conditions under the $1.3 billion RSF. The carbon levy is intended to counterbalance the fiscal impact of reduced import duties on vehicles and their parts.
The government has said that the new programme was needed to support reforms that mitigate vulnerabilities to natural disasters and enhance climate resilience. In exchange for the funding, Pakistan has committed to strengthening public investment processes across all levels of government to prioritise projects that enhance disaster resilience.
Other commitments include improving water resource efficiency through better pricing mechanisms, enhancing intergovernmental coordination on disaster financing, upgrading the information architecture, disclosure of financial and corporate climate-related risks, and promoting green mobility to combat pollution and its adverse health impacts.
As part of the staff-level agreement, Islamabad reluctantly agreed to initiate a study on phasing out existing Special Economic Zones (SEZs) by 2035. The American consulting firm AT Kearney has been tasked with completing the study by June this year.
The IMF has also agreed to reduce Pakistan's tax collection target to Rs12.33 trillion from Rs12.97 trilliona Rs640 billion reduction. However, the Federal Board of Revenue (FBR) is still expected to fall significantly short even of the revised target and is currently struggling to meet April's Rs983 billion goal.
Another IMF mission is scheduled to arrive in Islamabad on May 14 to review and approve next fiscal year's budget ahead of its expected presentation to the National Assembly around June 2.
Following the March discussions, the IMF also cut Pakistan's economic growth forecast to 2.5%, while also reducing the inflation forecast to 5.1%. This suggests that while inflationary pressures are easing, job creation remains stagnant due to subdued economic growth.
Pakistan has not received IMF approval to make substantial interest rate cuts, and the global lender has advised the central bank to maintain a tight monetary policy stance.
The IMF also significantly reduced its estimate for Pakistan's current account deficit this fiscal year from $3.7 billion to around $400 million. In contrast, the World Bank has projected an $800 million surplushighlighting that immediate external sector risks have abated. However, long-term sustainability still hinges on continuous foreign loan rollovers and effective import management.