Pakistan has managed to convince
the International Monetary Fund (IMF) to reduce external additional loan requirements to $6 billion amid the government’s desire to give an Rs150
billion subsidized petrol package to motorcyclists
In order to avoid an objection by the IMF, roughly Rs150 billion annual subsidy on account of Rs25 to Rs50 per
liter is planned to be recovered from car owners, according to discussions that took place at the Prime Minister’s House on Monday.
“The proposal is to raise the petrol price in the range of Rs300 to Rs325 per liter for car owners but reduce it
to Rs250 to Rs225 per liter for motorcyclists,” according to sources.
Prime Minister Shehbaz Sharif is throwing a new challenge to the economic team at a time when the
the finance ministry and the State Bank of Pakistan (SBP) are already grappling with the issues of arranging $6 billion in more loans and a further
hike in interest rates.
A high-ranking government functionary told The Express Tribune that the IMF and Pakistan last week found a middle ground on
the issue of the external financing gap.
“Against the IMF’s earlier estimates of a $7 billion external financing gap,
both sides have now agreed to reduce the estimates to $6 billion,” he added.
The $1 billion reduction in financing needs means, lowering the new loan requirement by the same amount.
While addressing a news conference last week,
Finance Minister Ishaq Dar said he had valid reasons to believe that the external financing gap was not $7 billion but $5 billion.
“The reduction has been achieved by marginally reducing the projection of the current account
deficit and lowering the foreign exchange building requirements,” he added.
The current account deficit is now being projected around $7.7
billion — as against the earlier IMF projection of $8.2 billion, he added.
Another roughly $500 million is being reduced against the projected foreign exchange reserves required for the current fiscal year.
“The IMF is now willing to consider the foreign exchange reserves level equal
to 1.7 months of prospective imports cover,” according to the senior government functionary.
Pakistan’s gross official foreign exchange reserves stand at $4.3 billion — not enough for one month of import cover.
However, despite shaving off $1 billion from the estimates, Pakistan’s woes have not ended. It still has to arrange assurances from the regional countries for $6 billion in additional loans.
Pakistan has claimed that it has so far $2 billion assurance from Saudi Arabia and
$1 billion from the United Arab Emirates (UAE), leaving it with a gap of $3 billion.
The sources said that Finance Minister Ishaq Dar
called on Monday to the finance minister of Qatar to get his country’s help bridging the financing gap.
The IMF is reluctant to announce a staff-level agreement until it is sure that the regional countries will bail out Pakistan.
In August last year, the directors of the regional countries China, Qatar, Saudi Arabia, and the UAE, had given assurances to the IMF board
that they would provide additional financing of $4 billion. But this did not materialize.
The finance ministry has a desire that the IMF should take the country’s case for board approval on March 24th – a date that seems
overambitious given the fact both sides have not reached a staff-level agreement.
So far, Pakistan has increased electricity prices,
gas prices, and fuel prices, devalued the currency and increased the interest rates by 3% to a record high level of 20%.
The sources said that the issue of interest rate hikes was not ultimately settled yet and another interest rate hike might be on the horizon. The central bank has already convened a meeting of the Monetary Policy Committee on April 4th.
After the recent hike,
the real interest rate was slightly positive compared to the core inflation. But the IMF calculated the inflation-adjusted positive interest rate from the headline inflation rate. Dr. Reza Baqir-led central bank had agreed to link the speed with the headline inflation. The headline inflation in February hit a 50-year high of 31.5%.
At the beginning of the IMF program in 2019, the policy rate stood at 10.75%, which has almost doubled. SBP Governor Jameel Ahmad did not respond to a question by The Express Tribune whether “the IMF has asked Pakistan to increase the interest rates further”