Toughest review: IMF approves $1 bn loan tranche for Pakistan

ISLAMABAD: Following the implementation of tough conditions demanded by the International Monetary Fund, its Executive Board on Wednesday approved the completion of the Sixth Review and release of $1 billion tranche for Pakistan under the Extended Fund Facility (EFF).

In line with the IMF’s staff-level agreement, Pakistan got approval for a mini-budget, granted autonomy to the central bank under the State Bank of Pakistan (SBP) Amendment Act, hiked power tariff and other prior actions that ultimately paved the way for completion of the outstanding review and release of $1 billion tranche from the IMF Executive Board. Minister for Finance Shaukat Tarin on Wednesday night tweeted, “I am pleased to announce that the IMF’s Board has approved 6th tranche of their programme for Pakistan”.

The IMF review took nine months for completion instead of three to four months. The IMF’s Executive Board granted a waiver on target of primary balance. Many independent economists, as well as political parties, termed this to be tough diktat to the sovereign parliament.

Pakistan had made fiscal adjustments of over Rs850 billion by taking taxation measures and slashing down development expenditures in the shape of Public Sector Development Programme to execute the IMF conditions during the ongoing fiscal year.

The FBR’s tax collection target was revised upward from Rs5.8 trillion to Rs6.1 trillion for the current fiscal year. The PSDP allocation was slashed down from Rs900 billion to Rs700 billion for 2021-22.

It was the toughest review of the existing IMF programme because Pakistan had made commitments on the eve of the last combined reviews of 4th and 5th related to taking taxation measures of Rs750 billion and submission of SBP’s Autonomy bill before the parliament. It was also committed that the power tariff would be hiked by Rs4.75 per unit but none of these could be implemented within the envisaged time-frame.

When Pakistan and the IMF kick-started parleys in October at technical levels, both sides could not evolve a consensus for striking an agreement at the staff level. Then Minister for Finance, Shaukat Tarin, along with the former secretary finance, had to negotiate with the IMF on the eve of the last annual meeting of IMF/World Bank in Washington DC for moving towards striking a staff-level agreement after agreeing on all prior actions.

The IMF asked for the removal of GST exemptions by arguing that without removing tax distortions, the tax system could not be streamlined. On the SBP’s autonomy, the IMF was of the view that there were instances where the autonomy of the central bank was compromised, so these two conditions were made part of the prior actions to get approval for the tranche for Pakistan.

Finally, the government managed to get parliament’s approval on these bills and converted them into an Act of Parliament. The government also managed the controversial SBP Amendment Act in the Senate where the treasury benches lacked majority but many opposition senators remained absent on the voting day, so the government passed the bill with a majority of just one vote; the treasury benches got 43 votes against the opposition’s 42 votes on the SBP bill.

It triggered a heated debate on the political front involving name-calling. Pakistan and the IMF had struck the staff-level agreement on November 21, 2021, but it took almost two and a half long months for implementation on all agreed upon prior conditions in seeking approval of Parliament on passing the mini-budget, granting autonomy to the SBP and hiking power tariff through raising the baseline tariff as well as implementing fuel adjustments in tariff.

Through the Tax Laws Supplementary Act 2022, the government also took taxation measures for withdrawal of General Sales Tax exemptions and other measures to fetch Rs343 billion.