KARACHI: The IMF’s Extended Fund Facility (EFF) has once again fallen off track amid delays in completion of the 9th review, experts said. The IMF has raised concerns over the fiscal slippages emanating from a combination of the devastating floods and revenue shortfall, particularly from Petroleum Development Levy (PDL), experts said, adding that there have also been concerns over accuracy of the budgeted flood rehabilitation expenditure.
Survival without the IMF is not an option given the scale of the external financing needs, where majority of the funding is linked to an IMF endorsement, Farhan Rizvi at Arif Habib Limited said.
“We expect a host of revenue and fiscal consolidation measures including imposition of GST on petroleum products and removal of GST exemptions, gas tariff hike, rationalization of electricity tariffs, etc, to get the program back on track and to pave the way for release of the next tranche of $1.2 billion in February 2023,” he said.
With the 10th review also due in early 2023 - combining the two reviews remains a possibility though this may further delay the IMF disbursement, he added.
Pakistan had a total external debt servicing obligation of $23 billion in FY23, of which $6.0 billion has been repaid and $4.0 billion rolled over. While the government had received commitments to fund the remaining amount, delays in the IMF 9th review have cast a shadow on those commitments.
Moreover, with further repayment obligations of $75 billion during FY24-26, the external account remains in a tight spot. Unlocking likely flows, however, requires Pakistan to stay engaged with the IMF for the long-term.
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“We expect Pakistan to complete the current program with another program post-general elections (second half of 2023) which will be essential to address both long-term structural issues and external financing needs,” Rizvi said.
He said PKR/USD has been artificially managed through administrative measures including limits on LC opening, bans on certain imports and curbs on dollar repatriation to keep dollar outflows in check. This has however created a vibrant grey market with 10-12 percent gap between official and unofficial rates hurting official remittances (10 percent decline in five months of FY23).
“We don’t see these measures as sustainable and expect the SBP to gradually loosen administrative measures as the IMF 9th review concludes and other flows materialize. Hence, we expect PKR/USD official exchange rate to converge towards the unofficial rate and decline to 250/263 by June/Dec’23.”
He expects headline inflation to remain elevated in the remainder of FY23 (December 2022-June 2023), at an average of 23.8 percent, mainly due to administrative measures.
The SBP shall maintain a tight monetary policy and raise rates by another 1.0 percent in the first quarter of CY23 with gradual easing in FY24 as inflationary pressures start to subside, he said. Fiscal tightening shall continue as the IMF program keeps policymakers in check with gas price, PDL hike and GST imposition on the cards.
Copyright Business Recorder, 2022