KARACHI: Expressing confidence to clear the final review of $3 billion short-term financing program of International Monetary Fund (IMF) after meeting key conditions including energy price hike, Pakistani authorities are weighing options to avail another $6-8 billion program, an official privy to the situation confirmed on Tuesday.
The South Asian nation, with a population of over 241 million, increased gas prices by up to 76 percent for domestic consumers in recent months before raising petroleum prices by 1-3 percent in February. The National Electric Power Regulatory Authority (NEPRA) also notified Rs7.05 per unit hike in power prices under fuel charge adjustment (FCA) on Monday.
Pakistani authorities are confident that recent energy price adjustments to meet some of the key conditions of the global lender would help clear the second and last review of the $3 billion Stand By Arrangement (SBA) that ends in March 2024.
“With latest energy price hikes, Pakistan has met almost all the preconditions set by the IMF for end-December 2023 review including exchange rate stability, continuation of tight monetary policy and restricted circular debt flow,” an official of finance division on Tuesday told Arab News on condition of anonymity.
The official said the government was successful in restricting the circular debt flow below the fund’s stated target of Rs385 billion ($1.37 billion), though it went as high as Rs378 billion ($1.35 billion) by the end of last December.
Pakistan’s circular debt stock, outstanding payments and liabilities in the country’s energy sector, continues to swell despite taking painful measures by the government including tariff hikes that resulted in high inflation.
The circular debt within the energy sector escalated to a staggering Rs5.73 trillion (approximately $20.5 billion) by the end of last November, official data reveals. This figure encompassed a power sector debt of Rs2.7 trillion ($9.66 billion) alongside a gas sector indebtedness surpassing Rs3 trillion ($10.7 billion).
While the IMF has not yet announced dates to start negotiations with Pakistan for the second review since it was ostensibly waiting for the formation of the next government, a successful review of the program will enable the South Asian nation to receive another tranche of about $1.1 billion from the fund.
The Pakistani official said the country was exploring various options to put before the IMF to avail new long-term program in recent weeks.
“The options under consideration included the size and conditions for the new program,” he said adding: “Yes, the size could be anywhere between $6-8 billion including the climate financing factor, the RSF.”
The Resilience and Sustainability Facility (RSF) of the IMF offers affordable, long-term financing to countries committed to reforms aimed at mitigating risks to future balance of payments stability, including challenges posed by climate change and pandemic preparedness.
The official, however, clarified that nothing had been finalized yet, adding these options were still at a preliminary stage and would be suggested to the next government, if finalized.
“It will be the prerogative of the next elected government to negotiate the size, terms and condition of the next program with the fund or whether or not they want to go to the IMF,” he added.
Last year in November, Pakistan’s caretaker finance minister Dr. Shamshad Akhtar hinted the country would continue to seek financial facility from the IMF to keep its fragile economy afloat.
Pakistani economists underscored the need for a new IMF program while calling for immediate engagement with the fund.
“It is good to hear that the government is working to get another IMF program,” Dr. Sajid Amin, deputy executive director at Islamabad-based Sustainable Development Policy Institute (SDPI), said.
“The real test, however, will be how quickly the new government takes up the challenge and engages with the fund.”
The present state of economy, particularly the low foreign exchange reserves and high external debt repayments, made it imperative for the country, Amin continued, to seek the IMF support for at least three more years.
“Unnecessary delays, as we witnessed in the PTI [Pakistan Tehreek-e-Insaf] and PDM [Pakistan Democratic Movement] tenures, will hurt the economy,” he warned.
Arab News sought comments from both the IMF and the finance ministry for this story, but received no response.