All prior actions taken by Pakistan: IMF

ISLAMABAD: While confirming fulfilment of all prior actions, including hiking the petroleum development levy, the IMF has linked its Executive Board meeting with assurances in writing from Islamabad about managing an external financing gap of $4 billion through friendly countries.

The selling of OGDCL shares to the UAE is one of the stumbling blocks in the way along with the others for signing the Letter of Intent (LoI) and dispatching it to the IMF’s Executive Board by extending confirmation that the required external financing of $4 billion has been materialised.

The government officials say that the Inter-Governmental Commercial Transaction Bill 2022 has been recently introduced by the government before the National Assembly. Once the bill is converted into Act, then the laid down procedures will be followed to accomplish G2G transactions. There could be a weighted average of shares in the last five years but when there is a buy-back provision over an increment of 2 to 5 per cent, then the pricing of shares could be settled through negotiations.

“With the increase in PDL on July 31, the last prior action for the combined 7th and 8th review has been met. The Board meeting is tentatively planned for late August once adequate financing assurances are confirmed,” the IMF’s Resident Chief in Pakistan Esther Perez Ruiz stated in a brief statement here on Tuesday.

Saudi Arabia has agreed in principle to jack up the oil facility on deferred payment by providing an additional $1.2 billion and Special Drawing Rights (SDRs) worth more than $1 billion but it will be done in December 2022. Qatar will provide RLNG on deferred payment.

The IMF’s Executive Board is expected to hold its meeting on August 24, 2022, in Washington D.C. for considering Pakistan’s request for approving combined 7th and 8th review and release of the $1.17 billion tranche. But before this Board meeting, Pakistan will have to sign a Letter of Intent (LoI) for extending confirmation that the bilateral friendly countries have assured to fill the financing gap of $4 billion over the period of the current fiscal year.

Another issue has arisen after two actions of the government taken recently, which might create a hole of Rs60 billion including approving Rs30 billion for PSO for averting default and another Rs30 billion after waiving of fixed tax from traders. To keep the budget deficit and primary deficit within envisaged limits, the FBR will have to raise additional Rs60 billion in revenues through more taxes for satisfying the IMF.

The approval of the FY2023 budget and reforms of Personal Income Tax in line with the IMF programme, signing of MoU among the federal and provincial governments on budgetary targets, raising baseline power tariff of Rs7.91 per unit in a staggered manner in three phases and first raise of Rs3.50 per unit from July 25, 2022, second from August 1, 2022, and third from October 2022. The IMF also placed prior action to increase PDL by Rs10 per litre on petrol and Rs5 per litre on diesel from August 1, 2022.

When Dr Khaqan Najeeb, former Adviser, Ministry of Finance, was contacted, he said for countries with a vulnerable balance of payments position, IMF is the best anchor to avoid distress. We must realise that the scarcity of foreign inflows to Pakistan over the past few months is mainly due to the delay in completing the 7th review of the program with the IMF. The recent statement by the IMF is welcome as it confirms completion of all prior actions but still leaves ambiguity of the Board date for Pakistan citing the conclusion of financing commitments with friendly countries as a requirement.

Dr Khaqan explained that the financing needs for Pakistan in FY23 are mainly due to a current account deficit estimated at around $10 to $12 billion and principal repayments on the external debt of about $24 billion. To fully finance this requirement of about $34 billion, IMF estimates a shortfall of $4 billion to be covered. Either the country can use fiscal, monetary and trade instruments to lower the current account which may be prudent or we can arrange the estimated $4 billion.

He felt discussions for filling the $4 billion gap have focused on oil and LNG deferment facilities, investment in oil company shares and some direct funding by friendly countries. The investment part can take time as it requires a new law and extended negotiations. IMF should be considerate of these facts and the difficulties the country has had in meeting considerable conditionalities.

Although, it has been tough to finalise the programme for Pakistan, it is still hoped that these commitments will be in place in the next couple of days for Pakistan to send a Letter of Intent (LoI) to the IMF, he concluded.