ISLAMABAD:The International Monetary Fund (IMF) on Tuesday announced it would consider Pakistan’s request for approval of a $2.3 billion package on May 9, including the approval of the 26th new climate programme, providing markets with clarity on the continuity of IMF-Pakistan relations.
Subject to the board’s approval, the IMF will immediately disburse a $1 billion second loan tranche under the $7 billion Extended Fund Facility (EFF). The board is also expected to approve a new $1.3 billion Resilience and Sustainability Facility (RSF), though disbursements under the RSF will be linked to the implementation of around 13 conditions, including the imposition of a carbon levy from July.
According to the IMF’s board calendar, Pakistan’s case is scheduled for the board meeting on May 9. The agenda includes the first review under the EFF, a request for modification of performance criteria, and an arrangement under the RSF.
Pakistan has fulfilled most of the conditions set by the IMF for the July-December period but fell short on a few, requiring the board to approve certain waivers to unlock the second loan tranche of $1 billion.
This time, India is expected to vote against Pakistan’s request due to a heightened security situation and concerns over a perceived “imminent” threat. It is pertinent to note, however, that Indian opposition in the IMF board cannot stop the approval of the tranche.
Pakistan and the IMF reached a staff-level agreement on March 27 to conclude the second review and to initiate the 26th financing facility.Prime Minister Shehbaz Sharif had earlier pledged that the 25th EFF would be the country’s last IMF programme. However, the RSF loan will now be disbursed over a 28-month period.
Pakistan’s official gross foreign exchange reserves have declined again to $10.2 billion following a $1.3 billion debt repayment to a Chinese commercial bank. The disbursement of the IMF tranche will push reserves above $11 billion ahead of further scheduled repayments to Chinese lenders.
To qualify for the new programme, Pakistan has agreed to impose a carbon levy from July this year and to increase water usage charges starting next yearkey conditions under the $1.3 billion RSF. The carbon levy is intended to counterbalance the fiscal impact of reduced import duties on vehicles and their parts.
The government has said that the new programme was needed to support reforms that mitigate vulnerabilities to natural disasters and enhance climate resilience. In exchange for the funding, Pakistan has committed to strengthening public investment processes across all levels of government to prioritise projects that enhance disaster resilience.
