Amidst narrowing of Pakistan’s options to tackle a prevailing economic crunch, Prime Minister Shehbaz Sharif has reportedly agreed to implement harsh measures that will facilitate the release of the next tranche of a stalled International Monetary Fund (IMF) program, seen as key to shoring up the country’s depleting foreign exchange reserves.
On Wednesday, the Reuters news agency confirmed that the World Bank had delayed until the next fiscal year approving two loans worth $1.1 billion for Pakistan. Pending since June, the loans have reportedly been put off due to the global lender’s concerns with Pakistan’s circular debt in the energy sector and pending tariff revisions. The government had been banking on these loans, and had included them in its annual financing plan, and their loss has left a gaping hole in the country’s needs.
At the same time, Pakistan’s hopes for financial support from “friendly nations” are also facing stumbling blocks. While the U.A.E. has agreed to rollover a $2 billion deposit with the State Bank of Pakistan (SBP) that was due for repayment in the next two months, Saudi Arabia has been less forthcoming, with Crown Prince Mohammed bin Salman only committing to “studying” increasing its existing $3 billion deposit with the central bank to $5 billion.
According to economic experts, bilateral and multilateral donors alike are resisting coming to Pakistan’s aid until it can revive the IMF plan. In an apparent verification of this, Saudi Arabian Finance Minister Mohammed Al-Jadaan said Riyadh was discussing with various financial institutions, including the World Bank, “more creative” means to provide support to Pakistan. Speaking at the World Economic Forum, he also indicated that the kingdom wants to shift from providing direct grants and deposits unconditionally to aligning aid with reforms.
“We are taxing our people, we are expecting also others to do the same, to do their efforts. We want to help but we want you also to do your part,” he said, adding that Saudi Arabia was already providing Pakistan with oil on deferred payments to support energy needs.
Pakistan’s incumbent government, however, has appeared particularly skittish about implementing necessary reforms, with Planning Minister Ahsan Iqbal admitting to Geo News’ Shahzeb Khanzada on Wednesday that part of this was due to political compulsions ahead of general elections due later this year. The time for dithering, however, appears to be coming to a close.
In a report citing discussions with government sources, daily The News said P.M. Sharif had principally approved several “tough” decisions, including raising gas and electricity tariffs, in a bid to revive the IMF program. The ruling coalition has also indicated plans to impose additional taxes to shore up financing needs that are heavily hampered by last year’s floods, which caused damages worth $30 billion nationwide.
According to local media, the ruling coalition is also planning to impose a flood levy on imports and additional taxes on commercial banks that have been involved in the alleged manipulation of the exchange rate. Taxes on sugary beverages, cigarettes and petroleum products are also under consideration. There is, however, no clarity on whether the government will allow the rupee to depreciate against the U.S. dollar amidst a widening gap between the interbank and open market rates. In recent weeks, banks have started to charge overseas transactions in accordance with open market rates, while paying out through interbank rates, facilitating a ‘grey-market’ of remittances being sent through informal networks rather than banking channels. This has seen remittances to the country drop by nearly 20 percent, further reducing the country’s foreign exchange reserves, even as the finance minister maintains that Pakistan cannot afford a free-floating exchange rate.