IMF programme details

  • Tough times ahead


The IMF has released details of the $6 billion Extended Fund Facility (EFF) bailout package approved a few days ago. Many of the conditions, as they had already been implemented in one form or another leading up to the IMF approval, – were already known. A semi-free-float exchange rate policy has brought the rupee closer to its realistic market value, the Fund is aiming to beef up SBP reserves, currently at $6.82billion, to $11.187 billion, this fiscal year meaning they will be used sparingly to manage the exchange rate, resulting in a stronger dollar against the rupee for the foreseeable future. Targets mentioned in the report range from challenging to unrealistic. For example, the tax revenue target for next financial year is Rs5.5 trillion that the Fund expects to be achieved through broadening of the tax base rather than raising tax rates, though rates have been increased in the latest federal budget. This is a tall order in the presence of a relatively inefficient tax authority that has historically been unable to undertake structural reforms to expand the tax net. The report has brought forth information that the country’s largest creditor is China with over a quarter of the $85.48 billion external debt owed to the latter in the form of bilateral and commercial loans. Pakistan is expected to repay $37.35 billion by the end of the programme, that includes 40 per cent being paid to China, which is essentially refinancing of old loans by taking new ones and paying off existing ones. Some new loans like the ADB’s $10 billion at the rate of $2 billion per year should provide some assistance.

Seeing how the trajectory of power tariff rates has been prior to the package being approved coupled with the quarterly ‘adjustment’ in power tariffs condition mentioned in the report and a confirmed increase in August; electricity bills will continue to rise. An ambitious target to privatise seven small state-run entities has been set that carries its own set of problems from unions to political pressure. Satisfying the FATF on all conditions has been reiterated by the Fund in the report and doing so by October, will require all stakeholders to take some tough decisions. The programme has been approved leaving the country to deal with three very long, tough years and then some.