As expected, a staff-level agreement has been reached between the IMF and Pakistan, which should see the IMF Executive Board approve the second tranche of the current 37-month Extended Fund Facility of $1 billion. The Board will approve another facility of $1.3 billion under the Resilience and Sustainability Facility, accessible over 28 months, which would mean a combined volume of IMF support of $8.3 billion. The markets did not go wild, though stocks and the rupee went up appreciably. The Pakistan Stock Exchange’s benchmark KSE-100 Index went up one percent, and the rupee gained 16 paisas, so no one could complain that traders were losing their heads. Perhaps the most realistic comment came from the Prime Minister, appropriately enough, that the review was successfully negotiated without a minibudget. This reveals the biggest fear looming over the government, because the biggest hurdle in the way of a successful review was the failure of the Federal Board of Revenue to meet its collection target. An agreement that tariffs needed to be lowered and that the auto sector should no longer be protected, indicated what the budget was going to be like.
The RSDF facility has come with the condition of a carbon levy being laid on all hydrocarbons, which basically means fuel and natural gas. The agreement has been for a start of Rs 3-5 per litre or equivalent, to go up. This is in addition to the existing petroleum levy, and will figure in the next budget. The money raised is supposed to be spent on specific climate-related expenses. The IMF has apparently signed off on a decrease of about Rs 7 per unit in electricity tariffs, perhaps because the figures were too compelling. The government’s readiness to ensure that budgetary targets were met, symbolized by its refusal to pass on the benefit of reduced international oil prices, played its due role in ensuring this,
However, it does seem that the fear of default has been replaced by the fear of the IMF. This is no way for a country to run. The government has prided itself on the achievements of preventing a default and of passing this review. However, there is another review to come, the first of many, unless the country breaks out of the debt trap. This is the task which is ahead of the government. This EFF is reaching a point where its end is coming into sight.
