Explained: Why Pakistan Is Yet To Receive The IMF Loan That It Desperately Needs To Avoid Debt Default

Explained: Why Pakistan Is Yet To Receive The IMF Loan That It Desperately Needs To Avoid Debt Default

by Ujjwal Shrotryia - Friday, March 24, 2023 05:01 PM IST
Explained: Why Pakistan Is Yet To Receive The IMF Loan That It Desperately Needs To Avoid Debt DefaultPakistan Prime Minister Shahbaz Sharif.

After months of negotiations, cash-strapped Pakistan has failed to reach an agreement with the IMF for the $6.5 billion bailout package to prevent a default and shore up its depleted Forex reserves.

Pakistan’s Foreign Exchange (Forex) Reserves are already down to dangerously low levels and can only cover imports of four weeks.

Initially, there were reports that an agreement will be reached before 9 February.

But even on 9 February, no decision was made and news reports came out later, saying that the talks are still ongoing.

In the meantime, however, the Shahbaz Sharif-led Pakistan Government, announced a new fuel-subsidy policy. The policy calls for subsidising fuel for the poor of Pakistan, by collecting more tax from the rich.

The Pakistani government plans to implement this plan in the next six weeks.

This policy, according to a, Hindustan Times report, is one of the main sticking points delaying the agreement.

An International Monetary Fund (IMF) official, Esther Perez Ruiz, criticising the subsidy plan said, “the government did not consult the fund about the fuel pricing scheme.”

“Fund staff are seeking greater details on the scheme in terms of its operation, cost, targeting, protections against fraud and abuse, and offsetting measures, and will carefully discuss these elements with the authorities,” Ruiz added.

However, the fuel subsidy policy is not the only sticking point in the negotiations.

According to another HT report, financing agreements with lender countries have also yet to be finalised, which is also causing delays in the process.

“The IMF wanted to see countries finalise commitments they’ve made to help Pakistan shore up its funds, before signing off on the bailout package,” Pakistan Finance Minister Ishaq Dar said.

The IMF official Ruiz hoped that a staff-level agreement would be signed once these few remaining points are settled.

Pakistan has already taken tough measures in accordance with the IMF demands, including allowing the weakening of currency to get the IMF bailout package.

The Pakistani Rupee has slipped to a record low of 284.03 to a Dollar, which is putting further pressure on Pakistani finances.

Pakistan has to repay a debt of $3 billion by June. The $6.5 billion IMF package is expected provide a much needed relief to Pakistan's economy.

Intern at Swarajya. Writes on Indian Military and Defence.
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