Pakistan’s hopes for IMF agreement rise as Saudi Arabia confirms $2 billion in additional deposits

The International Monetary Fund (IMF) has informed Pakistan that Saudi Arabia has confirmed $2 billion in additional deposits, which has rekindled hopes of an early agreement signing. Since January, Islamabad has been negotiating with the IMF for the release of $1.1 billion from a $6.5 billion bailout package that was agreed upon in 2019.

To unlock the funding, the Pakistani government has cut back on subsidies, removed an artificial cap on the exchange rate, added taxes, and raised fuel prices. However, assurances from friendly nations for additional funds have delayed the agreement.

The lender has informed Pakistani authorities of the development and the Fund staff is reportedly satisfied with the latest confirmation. The report states that the Saudi authorities are set to make a public announcement, possibly during the upcoming visit of Prime Minister Shehbaz Sharif to the kingdom.

The Saudi envoy in Pakistan had also hinted in a recent interview that his country had always supported Pakistan in critical situations and that good news would be shared soon. The sources have stated that all eyes are focused on the UAE for getting confirmation on another $1 billion deposit from them, which may pave the way for striking the staff-level agreement (SLA) with the IMF.

Finance Minister Ishaq Dar is expected to visit UAE on his way to the US where he will hold talks on the release of funds. However, there is still another stumbling block in the way of signing the SLA with the IMF. The Ministry of Petroleum, in consultation with the PM Office, had 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The government has not yet withdrawn the proposed cross-fuel subsidy, which cannot be implemented in a half-baked manner.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 were considered in the past during the tenure of former finance minister Shaukat Tarin and even during the era of the PDM-led government when Miftah Ismail had the charge of the Ministry of Finance.

Even Miftah Ismail had allocated Rs48 billion on the eve of the last budget in the name of Sasta Petrol, but it could not be implemented because such schemes could not be designed properly. The announcement of a half-baked cross-fuel subsidy had 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.