The International Monetary Fund (IMF) said on Wednesday that its executive board will meet in Washington, DC, on August 29 to talk about Pakistan’s combined reviews under the Extended Fund Facility (EFF).
The IMF’s Executive Board meeting for the combined seventh and eighth evaluations under the Extended Fund Facility (EFF) has been scheduled for August 29, “the IMF’s Resident Chief in Pakistan, Esther Perez Ruiz, told The News on Wednesday.
Pakistan has returned its Letter of Intent (LoI), signed by Finance Minister Miftah Ismail and State Bank of Pakistan Governor Dr Murtaza Syed. They also confirmed that the fuel duty would be gradually increased to Rs 50 per litre. In addition, the government has given the IMF a formal guarantee that the petroleum charge will be raised by Rs 10 per litre in September (next month).
Furthermore, the government intends to issue a mini-budget in the form of an ordinance to bridge the budgetary gap created by the repeal of various tax breaks granted to influential lobbies such as traders, bankers, and others. If the combined reviews are approved, Pakistan will be able to draw a $1.17 billion tranche from the EFF programme. The government has also requested that the IMF’s Board increase the EFF’s size by $1 billion, taking it from $6 billion to $7 billion and extending its timeframe from September 2022 to June 2023. After getting the next payment of $1.17 billion, Pakistan would get $4 billion from the EFF programme that is still going on.
Islamabad will have to pass three more reviews before receiving another $3 billion from the IMF during the remainder of the current fiscal year. Pakistan will need to manage $35 billion in external financing during the current fiscal year to pay back $22 billion in external debt service and cover a current account deficit of $11 to $12 billion so that foreign currency reserves don’t get even lower.
The SBP’s foreign currency reserves had been depleted at an alarming rate, standing at $7.8 billion on August 5, 2022, compared to over $20 billion in the same period of the previous fiscal year, indicating that reserves had been depleted by $12.2 billion in the previous 12 months. It will be difficult for the incumbent regime to build up foreign currency reserves in the current fiscal year as a buffer to absorb any external shocks because Pakistan will remain vulnerable to shocks at any point in the current fiscal year with the current levels of reserves.
After the $35 billion gap in external financing is filled, the government and SBP will have to work together to bring in more dollars to replenish the country’s foreign currency reserves, which are getting low.
