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Pakistan and IMF Discuss Short-Term Arrangement Amidst Political Transition

Pakistan and IMF

Introduction

Pakistan and IMF(International Monetary Fund) are engaged in discussions regarding a new short-term standby arrangement (SBA) worth approximately $2.5 billion. This SBA would serve as the remaining portion of the Extended Fund Facility (EFF) set to expire on June 30. The purpose of this arrangement is to assist Pakistan during the political transition to the newly-elected government, spanning six to nine months within the current fiscal year.

Pakistan Seeks Short-Term Financial Support for Political Transition

  • Time is of the essence as Pakistan and IMF consider a short-term SBA.
  • The SBA, valued at $2.5 billion, will aid Pakistan during the political transition period.
  • Both parties have discussed the options at the staff level, involving Prime Minister Shehbaz Sharif and IMF Managing Director Kristalina Georgieva.
  • The completion of the ninth review, along with the fulfillment of subsequent requirements, makes Pakistan eligible for disbursement of outstanding approved quotas.
  • Pakistan desires the entire amount of $2.5 billion to maintain financial stability.

Two Options Under Discussion

  • The first option is the disbursement of $1.1 billion under the ninth review, which would mark the end of the program without receiving subsequent tranches totaling $1.4 billion.
  • The second option involves a new short-term arrangement, with an upfront disbursement of $1.1 billion followed by additional reviews for up to $500 million each.
  • The second option is more favorable as it offers continuity and stability during the political transition.
  • A staff-level agreement is necessary by June 30 to instill market confidence, with executive board approval anticipated in the following weeks.

Petroleum Levy and Electricity Tariffs: Key Considerations

  • To secure the desired financial support, the government may need to raise the petroleum levy by up to Rs5 per liter in the upcoming pricing review.
  • Commitment to expedited regulatory processes for rebasing electricity tariffs, with an increase of Rs5-8 per unit, is also required.
  • These measures aim to secure the entire $2.5 billion and ensure financial stability.
  • The government’s cooperation in implementing necessary economic reforms strengthens the chances of securing IMF assistance.

Understanding Standby Arrangements

  • Standby arrangements, such as the SBA, provide short-term financial assistance to countries during challenging periods.
  • The SBA and the EFF are similar in nature, but the SBA has a shorter duration of 9 to 24 months, while the EFF extends for 3 to 4 years.
  • Both arrangements aim to address balance of payment challenges and promote economic reform.
  • Pakistan’s focus on stability and reform aligns with the goals of the IMF, fostering positive dialogue and collaboration.

IMF’s Recognition of Pakistan’s Measures

  • The IMF staff mission has praised Pakistan’s efforts and policy actions, emphasizing their alignment with the economic reform program.
  • The passage of the budget, broadening the tax base, and prioritizing social and development spending were acknowledged.
  • Improvements in the foreign exchange market and the implementation of tight monetary policies to alleviate inflationary and balance of payment pressures were recognized.
  • The positive feedback from the IMF reinforces Pakistan’s commitment to economic reform and encourages further progress.

Conclusion

As Pakistan approaches a political transition, discussions between Pakistan and the IMF aim to secure a short-term financial arrangement. The government seeks financial stability during this period, offering two options for consideration. Efforts to meet IMF requirements, such as the passage of the budget and implementation of necessary reforms, have been commended. Pakistan’s proactive measures demonstrate its commitment to economic stability and reform. The timely resolution of the short-term financial arrangement will contribute to a smooth political transition and bolster market confidence.

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