Former finance minister Shaukat Tarin said on Monday that the International Monetary Fund (IMF) will link the release of funds to fulfilling prior conditions including the removal of exemptions and subsidies on various items and increase in income taxes.
Pakistan and the IMF are currently engaged in reviving the stalled Extended Fund Facility (EFF) with various items on the agenda including the hotly-debated fuel subsidy. Revival of the programme is crucial for Islamabad that has seen its central-bank-held foreign exchange reserves drop to under two months of import cover.
Taking to Twitter, Tarin said that the international lender would link the tranche release – roughly amounting to $900 million – to the removal of subsidies on petroleum, power, fertilisers, pesticides and provident funds, whereas the income tax would need to be increased for the salaried group as well.
“We had these postponed till next fiscal,” said Tarin, adding that help from allies including China and Saudi Arabia is also being linked to these conditions.
Talks between Pakistan and IMF are likely to be held from May 18, 2022, with uncertainty gripping domestic markets over Islamabad's willingness to meet the different conditions.
While many experts believe that the country will have to meet IMF requirements, with removal fuel subsidy being top of the list, the weak coalition government and its inability to take tough decisions so far have unleased a wave of uncertainty. The situation has also put a spanner in other sources of foreign exchange inflow.
Last week, Finance Minister Miftah Ismail said that in May alone the government will bear losses of Rs102 billion on account of fuel subsidies. While Pakistan has seemingly agreed with the IMF to raise petroleum rates, the finance minister did hint at providing targeted subsidies to minimise the impact on inflation.
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The South Asian country has also seen a massive decline in its foreign exchange reserves in recent months owing to imports and debt payments.
Foreign exchange reserves held by the State Bank of Pakistan (SBP) decreased another $59 million to $10.5 billion, said the central bank on Friday, with the level staying at less than two months of import cover.
Revival of the programme paves way for a $900-million tranche as well as other sources of funding, with Islamabad also seeking an extension in duration and size of the $6-billion EFF.
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