ISLAMABAD - All hurdles have been removed in the way of Pakistan getting two tranches of $1.17 billion from the International Monetary Fund (IMF) by the end of current month as Islamabad has received the Letter of Intent (LoI) from the international lender.
Finance Minister Miftah Ismail and Acting State Bank of Pakistan (SBP) Governor Murtaza Syed would jointly sign the LoI, which would be forwarded to IMF immediately to ensure its Board approval by end of this month (August). The LoI is a document in which the country explains its commitments and targets in the loan programme with the IMF.
According to the Ministry of Finance, the IMF’s executive board is expected to meet by the end of current month to approve the two tranches and increasing volume of loan programme for Pakistan.
On July 14, 2022, Pakistan and the IMF had reached the staff-level agreement. The Fund would release $1.2 billion (SDR 894 million) for Pakistan after getting approval from the Board, bringing total disbursements under the program to about $4.2 billion. “Additionally, in order to support the program implementation and meet the higher financing needs in FY23, as well as catalyze additional financing, the IMF Board will consider an extension of the EFF until end-June 2023 and an augmentation of access by SDR 720 million that will bring the total access under the EFF to about US$7 billion” according to the IMF.
Pakistan had already completed all prior actions of the IMF. The government had taken a tough decision to increase petroleum products and electricity prices for the revival of the loan programme. Similarly, the government had increased the tax collection of the Federal Board of Revenue (FBR), enhanced petroleum levy on oil products and additional taxation burden on salaried class to fulfil the conditions of the IMF. The IMF programme was suspended in March this year when former Prime Minister Imran Khan had announced subsidy on oil products and electricity and tax amnesty scheme for the industrialists.
The government is in desperate need of loan from the IMF to build its foreign exchange reserves. The State Bank of Pakistan’s (SBP) foreign currency reserves fell to their lowest level in almost three years at $7.83 billion as of August 5 from $8.385 billion a week earlier on debt payment. The foreign reserves held by the State Bank of Pakistan dropped by $555 million due to increased debt payments and a lack of external financing. The central bank’s data showed reserves plunged to their lowest level since October 2019.
The loan approval from the IMF would also pave way for getting loans from multilateral and bilateral sources in the current fiscal year. Pakistan would receive $6.5 billion from multilateral sources in the current fiscal year. Around $3.5 billion inflow is expected from Asian Development Bank (ADB), $2.5 billion from the World Bank, $500 million Asian Infrastructure Investment Bank and some from Islamic Development Bank during the ongoing financial year following the deal with the IMF.
Finance Minister Miftah Ismail has recently informed the media about inflows from friendly countries. Without sharing the names of friendly countries, Miftah Ismail said that Pakistan would receive $1.2 billion deferred oil payment facility from a country.
Meanwhile, one friendly country has expressed interest to invest one to two billion dollars in Pakistan stock market whilst another has shown interest to provide gas worth $2.4 billion to Pakistan on deferred payment.
Similarly, another friendly country will deposit two billion dollars with State Bank of Pakistan whilst another will provide two billion Special Drawing Rights (SDRs). The government also wants to sell out Balloki and Haveli Bahadur Shah Power Plants, which would generate additional $2 to $3 billion.