$1 bn Loan Tranche Approved By IMF For Pakistan After Toughest Review

On Wednesday the International Monetary Fund Executive Board approved the Sixth Review completion and under the Extended Fund Facility (EFF) release of a $1 billion tranche for Pakistan, following the implementation of tough conditions it demanded.

Pakistan got approval for a mini-budget, hiked power tariff, granted autonomy to the central bank under the State Bank of Pakistan (SBP) Amendment Act, and took other prior actions according to the IMF’s staff-level agreement that finally made the way for the completion of review and release of $1 billion tranche from the International Monetary Fund Executive Board. Shaukat Tarin the minister of finance on Wednesday said he is pleased to announce that the IMF Board has approved the 6th tranche of their program for Pakistan.

The IMF overview took 9 months to complete rather than 3 to 4 months. A waiver on the primary balance target has been granted by IMF’s Executive Board. Many political parties and independent economists termed it to be a hard diktat for the sovereign government.

Pakistan had made over Rs850 billion fiscal modifications through slashing down development expenditures in the form of the Public Sector Development Program and taking taxation measures to execute the IMF conditions for the duration of the ongoing fiscal year.

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

It became the hardest review of the existing IMF program due to the fact Pakistan had made commitments in the last combined reviews of 4th and 5th associated with taking taxation measures of Rs750 billion and SBP’s Autonomy bill submission before the parliament. It was additionally committed that the electricity tariff would be hiked by Rs4.75 per unit however none of those could be applied within the predicted time frame.

When IMF and Pakistan commenced negotiations in October at technical levels, each side couldn't reach a consensus for placing an agreement at the staff level. Then Shaukat Tarin Minister for Finance, along with the previous secretary of finance, needed to parley with the IMF before the last annual meeting of IMF/World Bank in Washington DC for moving in the direction of reaching a staff-level agreement after agreeing on all previous actions.

The IMF has asked to remove the GST exemptions by arguing that without the removal of tax distortions, the taxation system couldn't be streamlined. The IMF viewpoint on the SBP’s autonomy was that there had been times where the autonomy of the central bank was compromised, so those conditions had been made a part of the previous actions for the approval of the tranche for Pakistan.

The government finally managed to get approval on those bills from the parliament and changed them into an Act of Parliament. The government additionally managed the disputed SBP Amendment Act in the Senate where the treasury benches were not in majority however at the vote casting day many opposition senators remained absent and the bill was passed with a majority of just one vote. The opposition got 42 votes against the 43 votes given to the treasury benches on the SBP bill.