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IMF to Consider Expanding Loan Facility to Pakistan by $2B

Global lender to send team to Islamabad in May to resume discussions for the completion of 7th Extended Fund Facility review

by Staff Report

Former finance minister Miftah Ismail

The International Monetary Fund (IMF) has agreed to increase the total outlay of the ongoing $6 billion Extended Fund Facility (EFF) for Pakistan by $2 billion and extend it for a year to boost the country’s foreign exchange reserves.

Addressing a news conference at the Pakistan Embassy in Washington, D.C.—where he met officials of the global lender to revive the suspended bailout program—Finance Minister Miftah Ismail said that the new coalition government had requested the IMF to increase the loan’s remaining outlay from $3 billion to $5 billion. This would bring the total outlay of the EFF to $8 billion, $3 billion of which had already been received by the ousted Pakistan Tehreek-e-Insaf (PTI)-led government. This expansion, he clarified, was subject to the government reversing the fuel subsidies implemented by the previous government, and other fiscal measures that had already been agreed to in previous discussions.

Ismail has already expressed his desire to wrap up the fuel subsidies, noting that they disproportionally benefit the rich. On Sunday, he explained that if he were to fill his car with petrol, the existing subsidies granted him relief of Rs. 1,600. “Remember one thing: subsidies that are given in Pakistan go to the rich. This a global problem but in Pakistan, the problem is more pronounced,” he said, regretting that the same people who celebrated this subsidy criticized any attempts by the government to expand welfare initiatives such as the Benazir Income Support Program.

He said the government needed to decide not only whether an average car owner should be given a subsidy, but also whether the budget allowed it. “If your government is giving double subsidy to run your car, does our pocket allow that? I say leave IMF’s point, Miftah Ismail is saying himself that we cannot afford this,” he emphasized.

The minister stressed that any agreements committed to by the PTI-led government were state-level accords, adding the incumbent government would abide by them. “We [coalition government] are responsible for that [agreements] … as well as the loans Imran Khan took,” he said, hinting that the autonomy the PTI had given to the State Bank of Pakistan would not be withdrawn at this stage. “We will not do anything that irks the IMF,” he said.

Ismail also echoed a statement issued by the IMF that it would send a staff-level delegation to Pakistan for talks to increase the outlay and revive the loan facility. “We hope that the staff-level agreement on the enhanced program will be concluded soon,” he said, but refused to comment on whether the next tranche of the loan—$1 billion—would be approved before the next fiscal budget, set to be announced in June.

In a statement issued on Saturday, IMF Mission Chief for Pakistan Nathan Porter said: “We had very productive meetings with the Finance Minister of Pakistan Miftah Ismail over Pakistan’s economic developments and policies under the Extended Fund Facility program.” He said that both sides had agreed on “prompt action” to reverse fuel subsidies that had slowed discussions for the 7th review.

“Based on the constructive discussions with Pakistan in Washington, the IMF expects to field a mission to Pakistan in May to resume discussions over policies for completing the 7th EFF review,” it said, adding “authorities have also requested the IMF to extend the EFF arrangement through June 2023 as a signal of their commitment to address existing challenges and achieve the program objectives.”

No default

During his press conference, the finance minister sought to ease concerns that Pakistan was headed toward default, stressing that the country had never done so before and would not do so in future either. “The Government of Pakistan has not defaulted in its 70-year history and will not default in the future as well,” the minister said with certainty. However, he admitted that a budget deficit persisted, adding that the new government would strive to reduce it by increasing the GDP.

“If our national income increases rapidly, and loans do not increase that rapidly, it means we are okay,” he said, adding that while the goal should be to maintain a low debt-to-GDP ratio annually, it was fine to have a high ratio one year so long as the trend moved toward reduction.

To a question, Ismail said the new government had not shuttered any of the Langar Khanas set up by the PTI-led government, as they were funded entirely by the Saylani Welfare Trust. “It was their money and we will not come in their way. We will provide them with as much ease as we can. Imran Khan’s government did not spend a single penny on that,” he said, adding that while the new government would simultaneously try to expand the program and create jobs that would remove the need for it.

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