Recently, IMF staff and Pakistan authorities have reached a staff-level agreement on policies to complete the combined 7th and 8th reviews of Pakistan’s Extended Fund Facility (EFF). The agreement contains some mandatory conditions or the borrower country to fulfil for a financial tranche. Under the 7th and 8th reviews of the EFF program, Pakistan will get a $1.17 billion tranche bringing the total disbursement to $4.2 billion.
The IMF grants loans to member countries who experience an actual or potential balance of payments problem. These loans are based on conditions such as a hike in energy tariffs, removal of energy subsidy, privatisation of public entities, increase in taxation, and fiscal adjustments to the budget. These conditions support borrower countries in solving their Balance of Payments (BoP) problems. The measures are meant to serve as a form of insurance for the lender, by ensuring that the imposed conditions on the borrowing country will be favourable enough for them to repay the loan and its interest by the due date.
Pakistan has been a member of the International Monetary Fund (IMF) since 1950. Due to the country’s crippling economic conditions and over-dependence on imports, Pakistan went to the IMF on twenty-two occasions for bailout packages. These packages were not meant for growth but aimed at enhancing macroeconomic stability and fixing external and internal imbalances within the country.
The combined 7th and 8th reviews of the Pakistan EFF program contain some conditions, including hiking electricity tariffs, imposing a levy on petroleum products, and setting up an anti-corruption task force to review all the existing laws. The government has increased electricity prices and imposed a Rs 50 per litre petroleum levy, as per the conditions. Another condition of the IMF states that no tax relief will be provided without the approval of the National Assembly (NA). According to this condition, The NA will approve a tax amnesty scheme for the construction sector and declaration of secret assets. All these measures are meant to secure the economic bailout.
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