Washington DC March 3 2022: Pakistan and the International Monetary Fund are scheduled to hold talks on seventh review under the Extended Fund Facility (EFF) from tomorrow 4th March 2022.
The completion of 7th review will entitle Pakistan to withdraw SDR 687 million equivalent to USD 960 million. This will bring the total purchases for budget support under the program to SDR 2,831 million (about US$4 billion, or 142 percent of quota).
Recently announced subsidy packages by the Prime Minister will be of concern for IMF authorities as in the sixth review IMF urged the authorities to unwind housing and construction subsidy out of concerns for financial stability. It noted that a direct and well-targeted budget subsidy program for the vulnerable parts of the population would be a more effective way to achieve social policy objectives. It also recommended stronger focus on addressing long-standing structural deficiencies to support private sector lending, in particular on mortgages and housing finance.
On power tariff IMF authorities concur that a subsidy reform is needed to effectively protect the vulnerable, introduce more fairness, and reduce budget costs. Key elements are a smaller group of subsidized consumers and a more progressive tariff structure. To this end, they completed some first reforms in September,18 which however failed to reduce total net subsidies (as previously envisaged in the end-June 2021 SB). Supported by the World Bank, the authorities had directed for (i) removing the previous slab benefit; and (ii) increasing the effective tariff of the unprotected slabs by at least PKR 0.5 per kwh.
Seventh review core agenda is to discuss end December 2021 performance and continuous criteria.
This discussion will be around performance criteria set by IMF for Pakistan. By end December 2021 Pakistan must ensure (1) net international reserves of the SBP to be at USD 7.677 billion, (2) net domestic assets of the SBP at PKR 10.190 trillion, (3) SBP’s stock of net foreign currency swaps/forward position under USD 4.6 billion, (4) primary budget deficit to be less than PKR 96 billion, (5) net government budgetary borrowing from the SBP under PKR 6.049 trillion and (6) amount of government guarantees under PKR 2.765 trillion.
