Pakistan’s currency shock is first step toward IMF loan revival

KARACHI: Pakistan has taken a first step toward reviving its bailout program with the International Monetary Fund by easing its control on the currency, which is among a slew of other decisions to be taken by the government to meet conditions set by the global leader, Bloomberg reported.

Prime Minister Shehbaz Sharif has said his coalition government is determined to complete the bailout plan even though it will have to pay a political cost for the decision just months away from national elections. Multiple other steps to meet the IMF conditions include increasing fuel and energy prices and raising more taxes, which together with the currency slump of about 13 percent in the past two days may further stoke inflation.

The government is wary these harsh decisions will further anger disgruntled people hit by high consumer prices hovering around 25 percent. In addition, former leader and bitter rival Imran Khan will exploit the situation when polls are held this year. Khan, who was removed from power in April through a no-confidence vote in parliament, is piling up pressure on the Sharif administration to call early elections that otherwise are not due before October.

A tough task lies ahead for the South Asian nation’s economic managers led by Finance Minister Ishaq Dar, who will have to convince the IMF that the country is ready to meet its obligations. The lender’s team is scheduled to arrive in Islamabad on Jan. 31, to review the economy after a three-month delay. Here are the key anticipated decisions by the government.

Petrol price

Pakistan will have to increases petrol and diesel prices between 15 percent and 42 percent, according to estimates by Karachi-based brokerage Arif Habib Ltd. The exact price hike will depend on whether the IMF asks the government to collect a 17 percent general sales tax on fuel. It is already charging 50 rupees ($0.2) a liter as tax on petrol.

Gas prices

So far, the nation has dodged the IMF by not accepting a key bailout condition of raising natural gas prices. There seems to be some traction now. The Oil and Gas Regulatory Authority has recommended the government increase gas prices by about 75 percent this month, while separately Sharif has set up a committee to find ways to reduce debt of about 1.6 trillion rupees in the gas sector.

Taxes

After missing the tax collection target by 225 billion rupees in December, Dar said he plans to introduce a flood levy, a tax to cover the losses of floods in August that caused damages of about $30 billion to the economy.

Pakistan is in its 13th loan program since the late 1980s and it introduced multiple new taxes in the middle of the year to meet the IMF demand to increase revenue.