ISLAMABAD: The executive board of the International Monetary Fund on Wednesday revived Pakistan’s stalled programme and cleared $1 billion tranche after Islamabad gave absolute autonomy to the central bank.
The executive board, that met in Washington, also waived off few conditions to pave the way for the release of the fourth loan tranche under the sixth review of the $6 billion Extended Fund Facility. The government has missed the primary budget deficit reduction target. The programme was suspended since June last year.
“I am pleased to announce that the IMF board has approved sixth loan tranche of its programme for Pakistan,” tweeted Finance Minister Shaukat Tarin on Wednesday.
The finance minister’s tweet suggested that it was the IMF’s programme however, IMF has always said that it is Pakistan’s programme.
After dragging feet for eight months, the government of Prime Minister Imran Khan signed off all the conditions that it tried to resist first in June and then in October last year.
The government agreed to take Rs800 billion measures through a combination of cut in expenditures and imposition of about Rs500 billion in taxes, including Rs20 per litre fuel tax, to revive the stalled $6 billion IMF programme.
The prior actions for the IMF board meeting that Pakistan met were approval of Rs360 billion mini-budget by the National Assembly, increase in the petroleum development levy rates every month (except in February), approval of the SBP Amendment Bill and the audit of Covid-19 expenditures and sharing of details about the beneficial ownership of coronavirus vaccines.
Earlier, the government had decided to keep the Covid-19 expenditures audit report confidential in violation of the IMF agreement. The report has disclosed Rs40 billion irregularities in the PM’s Covid relief package.
In November last year, Tarin had admitted that as a result of the IMF’s condition, “difficulties of the lower income groups will increase marginally but targeted subsidies will be given”.
The inflation rate in January skyrocketed to 13% – the highest in two years.
To qualify for the tranche, the Public Sector Development Programme was cut by Rs200 billion or 22% and the “contingency grants” were reduced by Rs50 billion, Tarin had said in November.
The tax collection target of the Federal Board of Revenue (FBR) has been increased to over Rs6.1 trillion – an addition of roughly Rs350 billion
The revised petroleum development levy target is now Rs356 billion – down from Rs610 billion that the government had set in the budget.
Pakistan will have to ensure a primary budget surplus after paying the cost of debt servicing against the budget target of Rs376 billion deficit, requiring strict fiscal discipline that would have severe implications for the economy.
The government has given absolute autonomy to the SBP. “Price stability, exchange rate of the rupee and the level of the interest rate will be the responsibility of the central bank in which the government will have no role.
With the approval of the $1 billion tranche, the total IMF lending will increase to $3 billion under the programme. Still $3 billion will remain which the IMF will disburse subject to completion of the remaining programme reviews.