In a diplomatic embarrassment for India, the Executive Board of the International Monetary Fund (IMF) on Friday approved two packages worth $2.3 billion, including a new $1.3 billion programme.
The global lender approved the $1billion worth second loan tranche of the Extended Fund Facility and sanctioned new $1.3 billion Resilience and Sustainability Facility (RSF). The deals have been approved despite India’s unsuccessful move to block during the Executive Board meeting.
Pakistan’s economic team, mainly its Secretary Finance Imdad Ullah Bosal and Finance Minister Muhammad Aurangzeb, put a lot of work to keep the programme on track after initial setbacks.
Deputy Prime Minister Ishaq Dar used his good terms with the PPP to fulfill some pending conditions, including the introduction of Agriculture Income Tax laws in Sindh and Balochistan.
The IMF would immediately release the $1 billion second loan tranche under the EFF while the $1.3 billion would be disbursed over a period of next 28 months. With the approval of the $1 billion second tranche due to Pakistan’s better fiscal performance, the total disbursements under the EFF would reach to $2.1 billion.
India undertook an unwise move to block the approval despite having only 2.7% voting rights, the second defeat in less than 72 hours after losing five fighter jets to superior Pakistan Air Force.
The deals were reached after both sides made some adjustments in the 25th Extended Fund Facility (EFF), including lowering tax target in absolute terms, setting a new deadline to trim the Pakistan Sovereign Wealth Fund and open economy to foreign companies.
Pakistan will also impose carbon levy as part of the conditions of the new $1.3 billion programme with effect from July this year and increase water usage charges from next year as part of the conditions for the new Islamabad also reluctantly agreed to commence the study for phasing out the existing Special Economic Zones (SEZs) by 2035.
About two months ago, an IMF team had reached a staff-level agreement with the Pakistani authorities on the first review of the 37-month Extended Arrangement under the EFF, and on a new 28-month arrangement under the IMF’s Resilience and Sustainability Facility (RSF) with total access over the 28 months of around $1.3 billion.
Pakistan would continue fiscal consolidation to reduce public debt while creating space for social and development spending and reducing crowding out of private investment. Pakistan will also refrain from increasing current spending beyond that budgeted, indicating that no supplementary grants can be issued.
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