- The Minister says she will advise on the external funding gap after the review.
- Loans from multilateral lenders linked to review, says an official.
- External financing gap “most serious threat”, experts say.
ISLAMABAD: Finance Minister Dr Shamshad Akhtar has ruled out Pakistan asking the International Monetary Fund (IMF) to increase the timing or size of the Standby Arrangement (SBA), while senior government officials are also advising on the implementation of the gap external funding once a successful review has been completed, The news reported on Thursday.
After arriving in Pakistan on November 2, Fund officials are negotiating with Islamabad to reach a staff-level agreement on the $3 billion SBA program. These talks will conclude on the 15th of this month.
Delegations to these talks, from the IMF and Pakistan, were led by Finance Minister and the lender’s Chief of Mission Nathan Porter, who both held one-on-one meetings during the week.
The news asked Dr Akhtar whether there was a possibility that Pakistan would request the IMF to increase the SBA program from March to June 2024 and increase the size from the existing $3 billion to $3.5-4 billion, the minister replied categorically, “No”.
To another question about the external funding gap, the minister replied that she would advise after the review.
Another official familiar with the ongoing talks with the IMF said the program’s loans from multilateral lenders including the World Bank, Asian Development Bank, Asian Infrastructure Investment Bank and the Islamic Development Bank (IsDB) were linked to the successful ongoing revision of the IMF program.
The IMF estimated that Pakistan requires gross external financing of slightly more than $29 billion, including external debt service of $24.5 billion and a current account deficit of $4.5 billion. Now that Pakistan is expecting $11 billion in deposit shifts and trade refinancing from bilateral friends, Islamabad will have to secure $18 billion in external loans in the current fiscal year, provided all other dollar inflow targets are met, such as exports, remittances and foreign direct investment in the prescribed mark.
There are some serious risks to debt dollar inflows, including a $5 billion commercial loan, $1.5 billion through an international bond issue, and $500 to $750 million from IsDB through ITFC of the $1 billion committed.
If interest rates at the global level, especially in the United States of America, decline and oil prices in the international market fall, then Islamabad could secure a breathing space, otherwise its external financing crisis could become a serious threat.
Independent economists predict that the external financing gap could range from $6 billion to $7 billion for the current fiscal year. It is the most serious threat to the economy and exchange rate stability.
On the fiscal front, the sources said the top brass of IMF and FBR discussed structural changes in tax administration, tax policy, tax administration, documentation/digitization, tracking and tracing system and their implementation for important revenue sectors, such as sugar, tobacco, cement and others. So far, the FBR’s annual tax collection target of Rs 9415 billion has been kept unchanged during the technical level negotiations between the two sides.
In the energy sector, the IMF has raised questions about the delayed increase in gas tariff from November 2023 against the commitment with the Fund to increase it with effect from July 1, 2023. The government is also supposed to increase the tariff of natural gas from January 1, 2024.
In the power sector, official sources told IMF that the government has released a subsidy amount of around Rs 70 billion in the first week of October 2023. It is important to mention here that the government had only released the subsidy amount of Rs 2.5 billion in the first quarter (July-September) against the total allocation of Rs 1.064 billion for the entire financial year 2023-24.
The losses of power sector distribution companies were estimated at Rs 589 billion, of which Rs 200 billion could not be recovered. So the remaining Rs 389 billion could be recovered and so far the government has launched the anti-theft campaign and recovered around Rs 50 billion. If this anti-theft drive continued unabated for the rest of the period, the total electricity bill collection of the electricity distribution companies could be improved by Rs 200 to 250 billion so that the annual losses would be reduced by 50 to 60%.
“We expect that 50 to 60% of the recovery of stolen electricity could be collected in the current financial year out of a total of Rs 589 billion,” the top official said.
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