Pakistan has received confirmation from Saudi Arabia for $2bn in additional deposits, according to the International Monetary Fund (IMF), renewing hopes of an early agreement. Pakistan has been in negotiations with the IMF since the end of January for the release of $1.1bn from a $6.5bn bailout package agreed upon in 2019. The government has made efforts to unlock the funding by cutting back on subsidies, removing an artificial cap on the exchange rate, raising fuel prices, and adding taxes.
Sources have confirmed that the lender has informed Pakistani authorities of the latest developments and that the Fund staff are largely satisfied with the confirmation. The Saudi authorities are expected to make a public announcement, possibly during an upcoming visit from Prime Minister Shehbaz Sharif. The Saudi envoy in Pakistan has also hinted recently that his country has always supported Pakistan in critical situations and that good news would be shared soon.
The UAE remains the focus of attention for confirmation on another $1bn deposit. Such confirmation could pave the way for striking the staff-level agreement (SLA) with the IMF. Finance Minister Ishaq Dar is likely to visit the UAE en route to the US, where he is expected to hold talks on the release of funds.
However, there is still a stumbling block in the way of signing the SLA with the IMF. The Ministry of Petroleum, in consultation with the PM Office, has announced an unplanned cross-fuel subsidy for owners of motorcycles and cars up to 800cc, which needs to be scrapped at this stage. The government has not yet withdrawn the proposed cross-fuel subsidy, which cannot be implemented in a half-baked manner.
Such schemes have been considered in the past but could not be implemented properly. The announcement of a half-baked cross-fuel subsidy has provided an excuse to the IMF for delaying the SLA signing, as they were still raising questions for getting more details to ascertain how the scheme was going to be implemented in a transparent manner.
The news of the confirmation of the additional deposits from Saudi Arabia comes as a relief to Pakistan, as it struggles to stabilize its economy. The pandemic has hit Pakistan’s economy hard, with the country experiencing a GDP contraction of 0.4% in FY21. Pakistan is also facing external debt and liabilities of around $115bn. The IMF agreement is critical to unlocking the funding needed to address the country’s economic challenges.
The confirmation of the additional deposits from Saudi Arabia is a positive step forward for Pakistan’s economy. However, the proposed cross-fuel subsidy needs to be scrapped to address concerns raised by the IMF. Pakistan needs to address the challenges faced by its economy to unlock the funding required to stabilize it.