Several days after the cash-strapped nation reached an agreement with the international lender on the critical loan facility, the IMF set strict preconditions, including raising electricity tariffs, and enforcing a tax on petroleum products, to resurrect the derailed $6 billion IMF bailout to Pakistan. Pakistan has also been requested by the IMF to form a task group to examine all current legislation intended to prevent bribery in government agencies. The IMF would next bring Pakistan’s proposal to its executive board for approval of the loan tranche and resumption of the programme, which might take another month. Increased energy rates, a plan by the cabinet to progressively impose a Rs 50 per litre petroleum fee to raise Rs 855 billion and removing the government’s involvement in setting oil prices are among the new requirements imposed by the IMF. The requests were made in response to the government’s choice to ask the National Assembly for permission to change the Petroleum Products (Petroleum Levy) Ordinance, 1961, on Wednesday. In order to impose a Rs. 50 per litre petroleum tax on high-speed diesel, gasoline, high octane blending component (HOBC), E-10 gasoline, superior kerosene oil, and light diesel, the legislation is being suggested to be altered. Additionally, a liquefied petroleum gas tax of Rs. 30,000 per metric tonne has been suggested.
With soaring inflation, declining foreign exchange reserves, a widening current account deficit, and a sinking currency, cash-strapped Pakistan is confronting increasing economic difficulties. In order to restart the $6 billion aid package that had stalled and open the door to funding from other foreign sources, Pakistan reached an agreement with the IMF on June 22. The agreement was struck when the authorities agreed to raise an additional Rs 43,600 crore in taxes and progressively raise the petroleum price up to Rs 50 per litre. This agreement was made between the IMF staff mission and the Pakistani delegation, led by finance minister Miftah Ismail. In July 2019, a $6 billion extended financial facility deal for a 39-month period was agreed upon. Only 50 percent of the guaranteed sum has been paid out thus far. Pakistan urgently needs access to $1 billion through the facility’s resurrection in order to support its declining foreign exchange reserves.
The IMF has suggested to combine the two upcoming programme reviews, the 7th and 8th, in its draught Memorandum for Economic and Financial Policies (MEFP) document, although it did not say that it would also sanction loan tranches of $2 billion. The MEFP will serve as the cornerstone for the staff level agreement that Pakistani authorities are now working to accomplish as soon as possible. Finance Minister Ismail, however, claimed that Pakistan had received the MEFP document, which represented the combination of the seventh and eighth evaluations of the bailout programme, and that following their approval, the nation would get a $1.9 billion loan. The IMF did not mention raising the loan tranche size to $1.9 billion in its draught MEFP paper. Both parties will now talk about the possibility of raising the loan amount. Pakistan desperately needs the IMF package to be revived in order to regain the trust of the international community in its economic strategy and to get access to international lending institutions and investment.
