Pakistan Gets Closer to IMF Bailout But May Get Delayed Again

Pakistan has persuaded the International Monetary Fund (IMF) to reduce its external additional loan requirement to $6 billion, despite the government’s desire to provide motorcyclists with an Rs. 150 billion subsidized petrol package.

To avoid an IMF objection, a Rs. 150 billion annual subsidy of Rs. 25 to Rs. 50 per liter is planned to be recovered from car owners. However, the IMF is still holding off on announcing a staff-level agreement until it is certain that the regional countries will bail out Pakistan, reported Express Tribune.

Last week, the IMF and Pakistan reached an agreement on the issue of the external financing gap. “Both sides have now agreed to reduce the IMF’s earlier estimates of a $7 billion external financing gap to $6 billion,” according to a source. Understandably, the reduction in financing needs of $1 billion implies a reduction in the new loan requirement of the same amount.

Despite shaving $1 billion off the financing gap, Pakistan’s problems have not been resolved yet. It still needs assurances from bilateral creditors for $6 billion in additional loans or risk stalling the IMF SLA.

Pakistan claims to have received $2 billion in assurances from Saudi Arabia and $1 billion from the United Arab Emirates (UAE), leaving a $3 billion gap. Finance Minister Ishaq Dar called Qatar’s finance minister on Monday to seek his country’s assistance in closing the financing gap.

In August of last year, the directors of regional countries China, Qatar, Saudi Arabia, and the UAE assured the IMF board that they would provide $4 billion in additional financing. However, this did not occur.

The finance ministry wants the IMF to take the country’s case for board approval on March 24th – a date that appears overly optimistic given that neither side has reached a staff-level agreement. Moreover, the PM’s pro-poor suggestion to give a Rs. 150 billion fuel subsidy to motorcyclists and rickshaws seems like playing a gamble with the IMF’s pre-conditions.

If the government goes ahead with its plan to raise petrol prices for car owners, it may face legal challenges or result in yet another IMF divorce.

So far, Pakistan has raised electricity, gas, and fuel prices devalued the currency, and raised interest rates to a record high of 20 percent. The issue of interest rate hikes was not completely resolved, and another rate hike could happen. The next Monetary Policy Committee meeting is on April 4th.

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