ISLAMABAD: The government has assured the International Monetary Fund (IMF) it will increase the petroleum levy to Rs50 per litre in the Letter of Intent (LoI) sent back ahead of the Fund’s board meeting on August 29.
Pakistan sent back its LoI after the document was signed by Minister for Finance Miftah Ismail and Governor State Bank of Pakistan Dr Murtaza Syed. They gave a written commitment that the petroleum levy would further go up by Rs10 per litre in September (next month).
The government is also set to present a mini budget through the promulgation of an ordinance in order to bridge the fiscal gap that occurred after waiving off different tax incentives offered to powerful lobbies such as traders, bankers and others.
With the approval of combined reviews, Pakistan will be able to draw $1.17 billion tranche under the Extended Fund Facility (EFF).
The government has also made a request to the IMF’s Board to augment the EFF size with an additional $1 billion, increasing it from $6 to $7 billion as well as its time-frame from September 2022 to June 2023. After getting the next tranche of $1.17 billion, Pakistan would obtain $4 billion from the ongoing EFF programme.
Depleting forex reserves
Islamabad will have to graduate from three more reviews for getting $3 billion more from the IMF during the remaining period of the current fiscal year. Pakistan will have to manage external financing of $35 billion during the current fiscal year in order to repay its external debt servicing of $22 billion and fulfilling the current account deficit of $11 to $12 billion for avoiding further depletion of foreign currency reserves.
The foreign currency reserves held by the SBP had depleted at an alarming pace and stood at $7.8 billion on August 5, 2022 against over $20 billion in the same period of the last fiscal year, indicating the reserves depleted by $12.2 billion in the last 12 months.
It will be a challenging situation for the incumbent regime to build up foreign currency reserves in the current fiscal year as a buffer to absorb any external shocks because with the existing levels of reserves, Pakistan will remain vulnerable to shocks at any point of time in the current fiscal year.
After fulfilling the external financing gap with requirement of $35 billion, the government and SBP will have to join hands to shore up more dollar inflows for building up the dwindling foreign currency reserves.
IMF board meeting on Aug 29
On Wednesday, the IMF confirmed that its executive board was scheduled to hold a meeting on August 29 in Washington, DC, for considering Pakistan’s combined reviews under the EFF.
“The IMF’s Executive Board meeting for combined seventh and eighth reviews under the Extended Fund Facility (EFF) has been set for August 29,” the IMF’s Resident Chief in Pakistan Esther Perez Ruiz said.