The International Monetary Fund (IMF) asked Pakistan to reduce expenses before talks on the ninth review of a $7 billion loan programme.
According to the local media reports, IMF advises Pakistan to reduce its expenses and Do More. Discussions between Pakistan and the IMF are still underway, but no party has reached a broad agreement on a revised macroeconomic framework for the current fiscal year.
Last week, the IMF said that Pakistan’s timely finalization of a recovery plan from devastating floods is essential to support discussions and continued financial support from multilateral and bilateral partners, on Wednesday.
Pakistan was already battling a full-blown economic crisis, with decades-high inflation and dwindling foreign exchange reserves, when it was hit by floods earlier this year. It entered a $6 billion IMF bailout program in 2019, and the ninth review is currently pending.
“The timely finalization of the recovery plan is essential to support the discussions, along with continuing financial support from multilateral and bilateral partners,” IMF Representative Esther Perez Ruiz said in a message to Reuters.
She added that IMF staff is continuing discussions with Pakistani authorities over policies to reprioritize and better target support toward humanitarian needs while accelerating reform efforts to preserve economic and fiscal sustainability.
Pakistan must now put in a lot of effort to finish the review by the first week of December 2022. If the negotiations are successful next month, the IMF will ultimately release the next tranche in January 2023 because the Christmas and New Year holidays start after that date. The Executive Board of the multilateral lender will meet the following year to approve Pakistan’s next tranche.
Remember that Devastating floods in Pakistan killed more than 1,700 people and inflicted billions of dollars of damage. Pakistani authorities estimates of the damage have varied from $10 billion to $40 billion.
Pakistan’s finance ministry last week said that it would “expeditiously” finish the technical engagement with the IMF as part of the ninth review of the programme, but a firm date for the review completion is yet to be announced.
The government has not revised the $7.47 trillion yearly objective set by the Federal Board of Revenue (FBR). The IMF, however, thinks that the reduction of imports may result in a shortfall for the tax collector. Second, assuming FBR met its goal, the tax-to-GDP ratio would decline even lower because it did not equal the nominal growth statistics of 25 percent. Third, the aim of Rs2 trillion in non-tax revenue also might not be met.
The government had a target of Rs855 billion before the next budget, therefore the IMF highlighted that the petroleum development levy may not completely materialize. Because the government was unable to impose a fee of Rs50 per liter on diesel and because the consumption of petroleum products fell by 21 percent, the levy target may now be reduced to Rs500 billion.
Another obstacle to reaching an agreement was the government’s failure to pass legislation and reforms to the energy industry.
Remember that already Federal government increased the petroleum levy on petrol after the IMF raised concerns over the reduction in Petrol prices. The increase in the petroleum levy has been imposed because of the concerns shown by the IMF when the finance ministry reduced it on petrol by Rs5 to Rs32.42 from Rs37.42 per litre on October 1, 2022.