ISLAMABAD: Pakistan is facing a crucial task of satisfying the International Monetary Fund (IMF) on several fronts in order to secure the release of at least some of the remaining $2.5 billion from a lending program set to expire at the end of the month.
According to Esther Perez Ruiz, the IMF’s resident representative for Pakistan, the country must present a budget before the IMF board can review the disbursement. There is only enough time for one final board review before the $6.5 billion Extended Fund Facility (EFF) concludes.
Pakistan’s foreign currency reserves are currently sufficient to cover only one month’s worth of imports. Initially, Pakistan anticipated the release of $1.1 billion in November, but the IMF has stipulated certain conditions that must be met before further disbursements can be made. Perez Ruiz emphasized the need for the proper functioning of the foreign exchange market, the passage of a fiscal year 2024 budget aligned with program objectives, and the establishment of firm and credible financing commitments to bridge the $6 billion gap.
As the EFF approaches its expiration date in just over three weeks, the Pakistani government faces a daunting list of tasks. The IMF assigned Pakistan the responsibility of securing $6 billion in external financing commitments from other sources. However, to date, only $4 billion in commitments, primarily from Saudi Arabia and the United Arab Emirates, have been obtained.
Although Pakistan eliminated daily limits on currency fluctuations earlier in the year under pressure from the IMF to adopt a more market-determined exchange rate regime and shut down an unofficial currency market, analysts suspect that the authorities are still attempting to manage the exchange rate out of fear that the rupee may depreciate excessively.
Perez Ruiz outlined the IMF’s broad expectations for the upcoming budget. The discussions on the fiscal year 2024 budget should aim to strike a balance between strengthening debt sustainability prospects and creating room for increased social spending. The additional social spending would help alleviate the impact of inflationary pressures on Pakistan’s most vulnerable population. However, the government needs to make further progress in identifying spending and revenue-generating measures to achieve these objectives.
Pakistan is grappling with an economic crisis, with inflation reaching a record 37.9% in May. To persuade the IMF to unlock funding, the government has implemented tax increases, raised energy tariffs, reduced subsidies, and the central bank has raised policy interest rates to an unprecedented 21%.
During the EFF, the IMF has conducted only eight of the intended ten reviews, with the last one taking place in August of the previous year. Pakistan is scheduled to release its economic survey with key statistics today, ahead of the budget announcement on June 9.
With the general election on the horizon, some analysts believe that the government will announce populist measures on Friday, even if they may need to be scaled back later. Fahad Rauf, head of research at Ismail Iqbal Securities, anticipates a pay raise for government employees and a package for the agriculture sector, which could further burden the already narrow tax base. Independent economist Sakib Sherani shares a similar view, expecting the budget to be filled with pre-election measures that may not survive beyond the July-September quarter, given the necessity of continued IMF support.– Agencies