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Friday, September 22, 2023

IMF bailout extended by one year, loans increased by $2 bn

Those celebrating the IMF talks as some sort of a victory or even a "breakthrough" might be in for a bit of a shock once Miftah returns from DC

On Sunday, Pakistan and the International Monetary Fund reached an understanding to extend the long-standing bailout program by up to one year and increase the loan size from $6 billion to $8 billion. The agreement, still subject to final approval, was reached between IMF Deputy Managing Director Antoinette Sayeh and Pakistan’s Finance Minister Miftah Ismail.

The final session of the 7th Extended Fund Facility (EFF) review would be held in May, for which an IMF mission would dispatch a mission to Pakistan to resume discussions over policies for completing the 7th EFF review. The team would reportedly be led by Nathan Porter, Division Chief, South Caucasus Division.

Analysts believe that if a final agreement is reached between the International Monetary Fund and Pakistan, the move would provide a significant catalyst to the country’s stagnant economy and give breathing space to the new government. However, the move would also usher in record inflation as the IMF would demand the withdrawal of subsidies and dictate the country’s fiscal policies.

Read More: IMF dictates fiscal policies to Pakistan

Following the announcement of the in-principle agreement between the IMF and Pakistan, Khurram Husain, a columnist at dawn, wrote on Twitter, “Those celebrating the IMF talks as some sort of a victory or even a “breakthrough” might be in for a bit of a shock once Miftah returns from DC and briefs the govt on what all needs to be done before the program is resumed.”

Pakistan went to the IMF in 2019 and agreed to a 39-month Extended Fund Facility till September 2022. A total loan of $6 billion was to be given in installments to Pakistan; however, objecting to the recent subsidies given on petroleum products, the IMF refused to release the recent installment. 

The incumbent government’s Finance Minister went to Washington to revive the EFF. After the first meeting on 23, Minister Ismail said that he had “good discussions” with the IMF. He further added that “We can’t afford to do the subsidies we’re doing. So we’re going to have to curtail this”. In the interview, he emphasized that the former Prime Minister, before leaving the office, had set up a financial “trap” for his successor. He added that Imran Khan had derailed the economy through his mismanagement and his ill-thought-out policies, such as the amnesty scheme for businesses.  

The Minister was accompanied by Minister of State for Finance Dr. Aisha Ghaus Pasha, outgoing State Bank Governor Dr. Reza Baqir, Finance Secretary Hamid Yaqoob Sheikh, and Pakistan’s Executive Director to the World Bank, Naveed Kamran Baloch. 

Read More: IMF says will work with new govt

Technical level meetings will be held from Tuesday onwards, and the government hopes that once the mission reaches Pakistan, a staff-level agreement would be reached. 

On the sidelines, the Minister also met Axel van Trotsenburg, managing director of operations at World Bank. Vice President Hartwig Schafer also attended the meeting. In a news conference, the Minister apprised the media that significant progress was also made on getting loans from the World Bank. The Minister told the press, under the RISE program, “we will get a loan of $400 million.” He further added that “We only have to ensure three things including harmonization of GST and I have assured the World Bank that we will do it.” The AIIB is also expected to follow suit and match the loans released by the World Bank.