If Pakistan wants to sign a Staff-Level Agreement (SLA) with the International Monetary Fund (IMF) in the coming days, it must be certain that it will receive an additional $3 billion in funding.
To convince the IMF to approve the agreement, the cash-strapped nation requires assurance from Saudi Arabia for further deposits of $2 billion and a $950 million loan programme from the World Bank (WB) and Asian Infrastructure Investment Bank (AIIB).
A senior government official who deals with the IMF said, “We are hopeful,” and another senior official stated that the government expected to sign the SLA within the next few days, according to a national daily. However, the lender was hesitant to provide a timetable for when the agreement would be signed.
Only if the IMF is on board will the $950 million offer from the Resilient Institution for Sustainable Economy (RISE-II) of the World Bank through the Asian Infrastructure Investment Bank (AIIB) be accepted. This comes after China refinanced two commercial loans last week in two installments of $700 million and $500 million, for a total of $1.2 billion. Now, two additional installments of $500 million and $300 million will be refinanced by Chinese commercial banks in the upcoming days.
China intervened to assist Pakistan at a crucial time, re-financing its commercial debts before the IMF SLA is finished, defying western sentiments and unwillingness to invest. Relevantly, the financial struggles of Pakistani parliamentarians have been made more difficult by tensions between the United States and China.
On the IMF front, Pakistan has completed all pre-conditions to bring the lender on board and receive $1 billion under the lender’s Extended Fund Facility (EFF).
So far, the coalition government has implemented a number of austerity measures including unveiling a mini-budget to raise additional tax revenues of Rs. 170 billion.
Besides giving special allowances and bigger salaries to employees, the government has raised the GST rate from 17 to 18 percent, increased the power tariff by more than Rs. 7 per unit, imposed another power surcharge of Rs. 3.82 per unit, jacked up up the gas tariff, relinquished its hold on the market to free the exchange rate, increased the petroleum development levy, and hiked the policy rate by 300 basis points to 20 percent.