The government has asked the International Monetary Fund for a one year extension of the ongoing program, as well as an enhancement of the remaining financing. According to sources who were part of the government delegation in Washington DC, the fund has agreed “in principle”.
For its part, the IMF has asked for a removal of the fuel price caps imposed by the former government.
“Technical level talks will begin next week” says a source in the delegation. “IMF will send a mission to Pakistan in mid May to conclude a staff level agreement.”
The fuel subsidies have to be withdrawn “as soon as possible” and the fund has also asked to see how large the deviation between the fiscal year 2022 numbers will be from the targets set in December. “They want us to minimise the deviation and make up for some of the subsidy and deviation” the source tells Profit.
As the per last staff level agreement, the overall fiscal deficit was programmed to come in at Rs 2.917 trillion. But due to slippages along the way the projection in the same document showed it coming in at Rs3.761 trillion instead. Finance minister Miftah Ismael has said this figure is likely to be closer to Rs6.4 trillion if present course is maintained.
Rectifying these numbers and bringing them closer to the programmed targets now implies a very large adjustment in the form of higher taxes and sharply reduced expenditures in the next three months. The budget is also likely to contain severe austerity measures.
The fund also wants to see the overall budget strategy for next year. This suggests the budget is likely to be presented earlier than usual, most likely by middle of May to conclude the staff level agreement.
“They have agreed in principle to extend the program for a year” the source says, adding the request for this came from the government side. “They have also agreed to enhance the amount” the source said, adding modalities still need to be worked out.
The program at present is set to conclude by September of this year. Two reviews were scheduled, one in March and the last in June but the schedule has been thrown off after the last review stalled under the previous government due to the surprise announcement of fuel price caps. The remaining amount to be disbursed at present is $1.55 billion.