Cash-strapped Pakistan seeks US help to secure ‘lenient treatment’ from IMF for USD 1.1 billion funding

Cash-strapped Pakistan has decided to seek help from the US to secure “lenient treatment” from the IMF, amid a delay in signing the staff-level agreement with the global lender. Pakistan is awaiting a much-needed USD 1.1 billion tranche of funding from the Washington-based International Monetary Fund (IMF).

After failing to convince the global lender, Islamabad is left with no option but to seek help from Washington and its western allies, in order to secure a “lenient treatment” from the IMF for moving towards the staff-level agreement, Geo News reported. Pakistan’s economy is in dire straits. The foreign exchange reserves fell to a critically low level of USD 2.9 billion a few weeks ago. Pakistan’s longtime ally China is the only country that has refinanced USD 700 million to Islamabad.

The report said that Minister for Finance Ishaq Dar has established contacts with the US diplomatic corps, based in Islamabad, and made requests to help end the lingering stalemate with the help of the US treasury department. “Without the blessing of Uncle Sam, things may not move in the desired direction, despite Pakistani authorities claiming that they had implemented all prior actions under the advice of the IMF, which were possible for them,” sources were quoted as saying by the report.

“Now the IMF is asking to get 200 per cent assurances from the friendly countries and multilateral creditors to fill the financing gap of USD 6-7 billion on external account till the end of June 2023,” the report added. The IMF has asked Pakistan to get confirmation on external financing needs of USD 6 to USD 7 billion from Saudi Arabia, United Arab Emirates (UAE), Qatar and multilateral creditors to fill the gap till the end of June 2023, it said.

The Fund considers that without full surety of external financing, the ‘sustainability’ of the loan facility could not be guaranteed, said an official. Meanwhile, a senior government official said on Monday that the IMF side held a final meeting with the State Bank of Pakistan (SBP) officials on Monday, and now they hoped that the agreement would be signed in the next few days.

According to the official, the IMF also demanded abolishing the power sector subsidies on a permanent basis, as the Fund staff raised objections that the government had made commitments only till the end of the next financial year 2023-24. However, the IMF wanted a commitment to abolish power subsidies on a permanent basis; therefore, they asked for bringing changes in the wording of the Memorandum of Economic and Financial Policies (MEFP) in the last meeting, held in the previous week.

Pakistan is taking various steps on the Fund’s behest for the release of a USD 1.1 billion tranche under the USD 7 billion loan facility, including unveiling a mini-budget for fetching additional tax revenues of Rs170 billion by raising the GST rate from 17 per cent to 18 per cent. Pakistan and the IMF have been holding virtual talks after the two sides held 10 days of intensive negotiations with an IMF delegation in Islamabad from January 31 to February 9, which failed to reach an agreement.