ISLAMABAD: Pakistan’s Prime Minister Shehbaz Sharif directed the concerned authorities to slightly sweeten the bitter pills of an increase in energy prices and taxes on Wednesday by withholding his final approval of a set of measures that Pakistan needed to take to unlock the much-needed International Monetary Fund (IMF) program.
From Lahore, the prime minister presided over a virtual meeting. One of the people who attended the high-profile meeting told The Express Tribune that he also directed efforts to minimize political repercussions and alleviate people’s burdens.
Due to dissatisfaction with the World Bank and IMF, both of which are based in Washington, the nearly four-hour meeting came to no conclusion. Because the World Bank and the International Monetary Fund (IMF) have also taken a firm stance on Pakistan, another round will be held to bring these issues to a logical conclusion.
According to sources, the overwhelming majority of participants, which included key bureaucrats and cabinet members, were of the opinion that the IMF was the only option left and that specific measures would need to be taken.
However, there was disagreement regarding the size of these measures, particularly the amount of tax hikes and the percentage of tariff increases for gas and electricity. According to the sources, there was also a general agreement at the meeting that Pakistan would have to allow the rupee to reach a level closer to the open market rate.
However, according to the sources, the prime minister was concerned that these measures would further diminish his political capital and burden the people. A senior government official stated that the discussions were moving in the direction of a point where the government might ultimately decide that the IMF was the only option.
Another participant in the meeting added, indicating that a decision was anticipated within this week, that the current economic crisis is not the government’s fault but that it must be dealt with.
With only $4.4 billion in its possession, Pakistan’s economic situation has deteriorated. According to high-ranking sources who spoke with The Express Tribune, the most recent information demonstrated that Pakistan had also violated the limit set by the IMF for the central bank to limit forward swaps to $4 billion by the end of December.
A high-ranking government official acknowledged that, contrary to the requirement to limit foreign currency swaps to $4 billion, the amount was fluctuating between $5.2 billion and $5.5 billion, making it difficult to retire the excess amount with very limited reserves.
According to the sources, the severe import restrictions, currency controls, and increasing central bank exposure to short-term loans that had exposed commercial banks to numerous risks were the primary causes of concern for the IMF and the World Bank.
According to the sources, the situation could be run on the banks if it was not resolved, and the banks would not have enough money to pay the private depositors.
A source within the finance ministry disclosed that the net external financing during the first half of the current fiscal year was negative by approximately Rs300 billion, indicating that the external loans have run out.
The International Monetary Fund and the World Bank have come to the conclusion that Pakistan cannot receive new loans without first implementing long-term macroeconomic stability policies. The World Bank had already denied two $1.1 billion policy loans during the current fiscal year, as reported by the Express Tribune.
The current wide gap between open market and interbank exchange rates, according to some meeting attendees, cannot be sustained for an extended period of time. They added that going to the IMF would help prevent the economy from becoming dollarized and reduce the gap between the two rates.
However, the finance minister was very concerned about a strong rupee, and it was not immediately clear if the rupee-dollar parity would remain market-based, as the IMF had requested.
According to the sources, there was a unanimous consensus at the meeting that gas prices would need to rise starting this month. However, the Oil and Gas Regulatory Authority’s (Ogra) recommendation to mandate a 74% average increase beginning in July 2022 may not be accepted.
Pakistan has promised the IMF that the circular debt will not rise during the current fiscal year. There have already been approximately Rs500 billion in deviations over the first four months of the fiscal year.
During the meeting, it was talked about how the IMF might be asked to let the rest of the circular debt go into the stock and pass some of the impact on to consumers.
According to the sources, customers would be responsible for any subsequent excesses from January. They added that a tariff increase of approximately Rs7.50 per unit would be required if the IMF did not permit any adjustment.
In addition, a Rs170 billion to Rs200 billion minibudget was discussed at the meeting, which included a proposal to begin raising the sales tax on petroleum products. A study found that the FBR could still raise at least Rs270 billion if the mini-budget was implemented in February and 17% GST was implemented.
According to sources, a 1% GST increase would bring in Rs16 billion.
The finance ministry and the Power Division were instructed by the prime minister to create a new plan in which all measures could be spread out over time. However, the IMF’s approval was not forthcoming until the government demonstrated seriousness in taking concrete steps.
However, some attendees of the meeting were of the opinion that the World Bank and the IMF should not exploit Pakistan’s weak economic conditions, and that the IMF should relax in light of the devastation caused by the floods.