According to Pakistan’s Finance Minister Ishaq Dar, the country is on the brink of inking a staff level agreement with the International Monetary Fund. This development would be a crucial step towards addressing the current balance of payment crisis that has befallen the nation.
The minister asserted that the agreement is imminent and could be signed soon. Upon signing, the South Asian economy would receive $1.1 billion, which is a much-needed injection of funds for the cash-strapped country.
“We seem to be very close to signing the staff level agreement, hopefully, God willing, in the next few days,” Dar said at a seminar in Islamabad.
“I and my team are absolutely committed to complete this program to the best of our ability,” he said, adding: “We have been in the review and I think it has taken longer than it should have in my opinion.”
Islamabad has been hosting an IMF mission since early February to negotiate the terms of a deal, including the adoption of policy measures to manage its fiscal deficit ahead of the annual budget due around June.
The funds are part of a $6.5 billion bailout package the IMF approved in 2019, which analysts say is critical if Pakistan is to avoid defaulting on external debt obligations.
Dar said the current crisis was deeper and more complex than the two prior experiences he had overseen as finance minister, but he was confident the economy would be pulled out of the “quagmire”.
He said reforms in the energy sector, which has piled up more than four trillion rupees ($14.18 billion) in debt, were the most critical to get the economy back on track.
“The power sector has to be structurally reformed and fixed and let me endorse that the issue was and has been very grave,” he said.
The IMF deal would unlock other bilateral and multilateral financing avenues for Pakistan to shore up its foreign exchange reserves, which have fallen to just four weeks’ worth of import cover.
Islamabad has met most of the lender’s demands to clear the review. The last one yet to be fulfilled on the list is an assurance on external financing to fund its balance of payment gap for the current fiscal year, which ends on June 30.
Long-time ally China is the only country that has announced refinancing of a $2 billion loan, and Pakistan’s central bank has already received $1.2 billion of that amount.
Pakistan had to complete a series of prior actions demanded by the IMF, which included reversing subsidies in the power, export and farming sectors, a hike in energy and fuel prices, a permanent power surcharge, jacking up the key policy rate, a market-based exchange rate, and raising over 170 billion rupee($613.17 million) in new taxation through a supplementary budget.
The rupee depreciated 1.19% against U.S dollar in inter-bank trading in Thursday’s opening session, but recovered almost half of its losses by afternoon. It has lost around 20% of its value so far this year, extending a near 30% drop in 2022.
The fiscal adjustments have already fuelled 50-year record high inflation, which hit 31.5% year-on-year in February.
“I believe that we’ve to work together to control the current inflationary pressures,” Dar said, adding, “they’re unprecedented.”