Letter of Intent received from IMF

ISLAMABAD: Pakistan on Friday received the much-awaited Letter of Intent (LoI) from the International Monetary Fund (IMF), which would be sent back to the Fund’s executive board with the request to revive the stalled programme under the Extended Fund Facility (EFF).

The revival of the augmented $7 billion EFF programme will be considered by the IMF’s executive board in its meeting scheduled to be held on August 29, 2022 in Washington, DC.

“We have received the LoI copy today and we will send it back to the IMF’s executive board on Monday. The revival of IMF programme indicates that the country’s external financing needs have been fulfilled by the bilateral friends and also conveyed to the IMF,” Finance Minister Miftah Ismail said when The News asked him about the latest developments on the IMF programme, here on Friday. The minister said that the IMF’s executive board was expected to meet on Aug 29 for taking up Pakistan’s request to approve 7th and 8th reviews and release tranche of $1.17 billion under the EFF.

The minister said that PSO was facing a difficult liquidity situation owing to increased liabilities and hike in circular debt that got accumulated during the tenure of the PTI-led government. The same situation occurred in the gas sector whereby the monster of circular debt touched Rs1,500 billion mark.

Sources said the Ministry of Finance received the LoI on Friday and they were reading each paragraph of the document. There is nothing unusual so far in the LoI. After reading it carefully, Finance Minister Miftah Ismail and Acting Governor State Bank of Pakistan Dr Murtaza Syed would sign it and send it back to the IMF’s executive board for getting its final nod.

The IMF programme got stalled in February 2022 when the PTI-led government had announced untargeted fuel and electricity subsidies soon after getting approval on completion of 6th Review and release of $1 billion tranche from the IMF. This step resulted in a stalled EFF programme since February 2022.

Amid the dwindling foreign currency reserves, which have reduced to $7.8 billion held by the SBP, the revival of IMF programme was a must to bridge the external financing gap. The challenging situation would persist because Pakistan would have to build up its foreign currency reserves to avoid emergence of a default-like situation. It seems that after completion of the ongoing EFF programme in June 2023, Pakistan would have to seek another IMF programme in the next fiscal year.

Dr Khaqan Najeeb, former adviser, Ministry of Finance, when contacted, said that continuation of the IMF programme was indeed necessary for a country like Pakistan facing a balance of payment challenge and critically low reserves of $7.8 billion to avoid further distress. However, this breather must be used wisely.

He explained the current programme with the IMF could help ride over the liquidity crunch, by ensuring external fund flows in FY23 along with an uptick in domestic revenues through higher taxes, help tame the quasi-fiscal losses in the energy sector through hurtful but necessary price pass-throughs.