Pakistan’s Finance Minister Ishaq Dar has urged the International Monetary Fund (IMF) to show some flexibility and sign the staff-level agreement during a virtual meeting with Jihad Azour, the IMF’s director for the Middle East and Central Asia Department. However, the IMF once again raised the issue of petrol subsidy and possible fiscal leakages as a result of the implementation of the subsidy plan, leading to Islamabad’s growing concerns about the fallout of a worsening economic crisis.
According to sources, Ishaq Dar assured the IMF that the government might not implement the petrol subsidy scheme, and therefore, the fund should no longer raise the issue. He emphasized that the IMF should show flexibility and consider the progress that Pakistan had made so far in its endeavours to reach the staff-level agreement early.
The IMF has withheld the approval of the $1.1 billion tranche due to a delay in finalizing the agreement for the 9th review, and delayed the disbursements by the World Bank and other multilateral institutions. The IMF has already cut the required foreign loan amount by $1 billion to $6 billion last month, but Dar requested the IMF to lower the amount by another $1 billion to $5 billion after improvement in the current account deficit.
Dar also asked Nathan Porter, the IMF’s Mission Chief to Pakistan, who was also present in the meeting, to give the reasons for the delay in signing the deal. The finance minister urged the IMF to come clear on the timeframe of the staff-level agreement as the delay was now causing economic losses to the country amid growing nervousness in the markets.
Both sides shared their respective positions on the $6 billion external financing requirements – a sum that Pakistan needed from now till June to avoid default. The IMF informed that Saudi Arabia had given confirmation about the $2 billion lending to Pakistan. But confirmation by the United Arab Emirates remained pending, said the sources. Dar assured that the UAE would soon confirm its commitment to give $1 billion.
The sources said that Ishaq Dar urged the IMF to further cut the external financing requirement to $5 billion due to improvement in the current account deficit. The $6 billion financing gap had been worked out on the assumption that the current account deficit would remain around $7 billion in the current fiscal year.
During the first eight months of this fiscal year, the current account deficit remained at $3.9 billion. Ishaq Dar assured the IMF that in case the Fund signed the staff-level agreement, Pakistan would arrange the $2 billion additional loan from the World Bank, the Asian Infrastructure Investment Bank and the commercial banks. However, the IMF was asking for arranging commercial loans before the staff-level agreement, a demand that Pakistan is unable to meet in the absence of the IMF umbrella.
According to the finance ministry, “Jihad Azour expressed his confidence that Staff-Level Agreement (SLA) will be signed soon followed by the IMF Board’s approval”. Jihad hoped that Pakistan would continue towards progress on the reforms in various sectors and complete the IMF program in time, and that the IMF would play its positive role in bringing economic stability to Pakistan.