IMF-Pakistan long-awaited loan agreement is still stuck. Statements from both sides keep on changing. Ishaq Dar, Pakistan’s troubled Finance Minister, who was sent as a troubleshooter from London keeps on promising a finalization every week but then a new issue comes up adding to the never-ending suspense. The latest is that IMF will be ready to sign once a “Fuel Pricing Scheme” is finalized and shared. Earlier media were abuzz with IMF demanding that Pakistan must show confirmed external financing to support its plans. Though formally PDM govt started talks to resume the $6.5 billion stuck EFF program only in February 2023, but for all practical purposes, the talks have been going on since April 2022.
The latest issue is due to a plan, announced by Prime Minister Shehbaz Sharif in the second week of March, to charge affluent Pakistani consumers, with big cars, more for fuel, with the money raised used to subsidize prices for the poor, who have been hit hard by inflation. The novel plan sounds a bit bizarre, perhaps one of its kind anywhere in the world. It involves a difference of around 100 rupees (35 U.S. cents) a liter between the prices paid by the rich and poor, explains the petroleum ministry. Petroleum Minister Musadik Malik told international media this week that his ministry was working out details but argued that it was not a subsidy but a relief program. Malik explained: “People with larger cars will pay more than people with smaller cars. Smaller cars are more fuel efficient, so people will move towards more fuel-efficient cars.” How cars will be classified into big and small is not clear. To most Pakistanis big cars are standard Honda and Toyota and not necessarily SUVs which are in very small numbers in Pakistan.
However, Esther Perez Ruiz, IMF’s resident representative in Pakistan, told international media that the government had not consulted the fund about this “Fuel Pricing Scheme” Ms. Perez argued that the IMF would ask the government for more details, including how this fuel scheme would be implemented and what protections would be put in place to prevent abuse.
With $4.6 billion in foreign exchange reserves held by Pakistan’s central bank in the week ending Match 17, enough to cover only about four weeks of necessary imports, Pakistan is desperate for the IMF agreement to disperse a $1.1 billion tranche from a $6.5 billion bailout agreed in 2019. Quantum of IMF release is less important, Pakistan needs this IMF deal to leverage financial commitments from international development agencies (like World Bank and ADB) and bond markets.
Islamabad has, to secure the IMF agreement, implemented several measures, including devaluing the rupee, lifting subsidies, and raising energy prices, as preconditions for the agreement. This has been painful for the public and has been politically very unpopular.
The International Monetary Fund (IMF) had also asked the Pakistan Prime Minister Shehbaz Sharif-led government to provide external financing assurances in order to get its next bailout tranche approved. Pakistan usually looks towards Saudi Arabia, UAE, and even China. Finance Minister Ishaq Dar, had claimed – at a press briefing – that the assurance from “friendly countries” for Islamabad to fund a balance of payment gap will be available. However, later media reported that Saudi Arabia has politely declined. Other sources close to IMF missions in Pakistan and in Washington believe that Staff Level Agreement (SLA) still looks far off – because even if it is agreed upon in Islamabad, the IMF Pakistan team will find it hard to get approvals from the IMF Board in Washington. It looks like Pakistan’s long winter of discontent is not going to end any time soon.