#IMF #agrees #resume #loans #Pakistan #fuel #tax #hikes
The International Monetary Fund (IMF) said Thursday it had agreed with Pakistan to resume a suspended loan program that will inject $1.17 billion into the struggling economy.
A statement from the IMF says an “employee agreement” — which is still subject to board approval — will bring the amount to be distributed under an expanded fund facility (EFF) to $4.2 billion due on April 7 Billions of dollars could rise and extend into June next year.
An initial $6 billion bailout was signed by former Prime Minister Imran Khan in 2019 but repeatedly stalled when his government broke subsidy deals and failed to significantly improve tax collection.
The new deal follows months of deeply unpopular austerity by Shehbaz Sharif’s government, which came to power in April and has effectively scrapped fuel subsidies and introduced new measures to broaden the tax base.
“Pakistan is at a challenging economic tipping point,” Nathan Porter, who led the IMF team, said in a statement, adding that external factors and domestic politics were to blame.
Pakistan is desperate for international support for its economy, which is suffering from poor tax revenues and dwindling foreign exchange reserves, to pay off its crippling debt.
The new administration has cut a range of subsidies to meet demands from global financial institutions but risks the ire of an electorate already struggling under the weight of double-digit inflation.
A new coalition government – which came to power after Khan was ousted by a parliamentary no-confidence vote – has announced it will make the tough decisions needed to turn the economy around.
Successive governments blame their predecessors for the country’s economic woes, but analysts say the malaise stems from decades of poor management and a failure to tackle endemic corruption and widespread tax avoidance.
To secure the IMF loan, Prime Minister Sharif has imposed three fuel price hikes – 50 percent in total – and raised electricity costs, effectively ending the subsidies Khan introduced.
Islamabad has received $3 billion from the program so far, but with the facility due to expire later this year, officials requested an extension until June 2023.
“It became imperative to resume the IMF program to save the country from defaulting,” Finance Minister Miftah Ismail told the National Assembly last month.
“We knew it would damage our political reputation, but we did it anyway.”
The latest budget is 3.95 trillion rupees (US$18.8 billion) to service the country’s massive US$128 billion debt.
Agreed policy priorities included rigorous implementation of the budget, the IMF’s Porter said in the statement.
Pakistan also agreed to continue energy sector reforms, introduce proactive monetary policies to fight inflation, strengthen governance, fight corruption and improve the social safety net.
“Nevertheless, the authorities should stand ready to take any additional measures needed to achieve the program objectives, given the heightened uncertainty in the global economy and financial markets,” the statement added.
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