Political upheaval deadlocks IMF loan

By Muhammad JuniadPublished On 06 Jan 2023

The political crisis has created a deadlock between Pakistan and the International Monetary Fund (IMF) until the next elected government.

“The IMF is looking to continue its support to Pakistan once the new government is formed,” “It will deal with the newly elected government team and will resume the talks.”

The statement indicates that the seventh review has ended and the three-year Extended Fund Facility (EFF) has been put on hold since it began in May 2019, when Pakistan and the IMF had reached a staff-level agreement on economic policies.

So far, Pakistan has received a loan tranche of $3 billion under the agreement, it was to receive about $6 billion for a period of 39 months. It was scheduled to end in September this year.

Reacting to the development, journalist Gibran Peshimam refuted the media reports that the IMF loan program has been suspended. He said the announcement from the IMF came out as “there is no government to deal with at the moment”.

The IMF deals with a setup that has a policy mandate, while the caretaker setup does not, he added.

The development came a day after President Dr Arif Alvi dissolved the National Assembly on the advice of Prime Minister Imran Khan.

In February this year, the IMF executive board had met in Washington for the review and had approved the sixth tranche of loans under the $6b loan program after Pakistan took a number of steps to meet IMF’s prior action targets.

These actions included rolling back sales tax exemptions worth Rs350 billion, increasing the petroleum development levy, passage of the State Bank of Pakistan (SBP) Amendment Act from the Parliament and the audit of Covid-19 expenditures.

The second round of the seventh review of the Extended Fund Facility (EFF) was inconclusive after it raised objections over the Prime Minister’s Relief Package for slashing down petrol, diesel, and electricity prices as well as granting tax amnesty for the industrial sector.

The monetary body had asked Pakistan to jack up the discount rate, allow free movement of the exchange rate, slash down Kamyab Pakistan Program (KPP) and reverse relief package measures to align it with prudent financial management.

The last two reviews under the EFF arrangement took almost a nine-month period each time for completion of the negotiation.