Risks of shortages loom as IMF tranche disbursement approaches

February 13, 2023 (MLN): As the country gears up for the disbursement of the International Monetary Fund (IMF) tranche, there are concerns about potential shortages of goods in the country. The focus of the government will be to ensure debt repayments and maintain only critical imports, the latest report by Topline Securities stated.

There is already a hint of petrol rationing in some parts of the country coupled with selected capital controls and slow processing of non-essential imports.

It is prudent to note that despite a prolonged 9-day visit by an IMF delegation, the much-anticipated Staff Level Agreement (SLA) with the visiting IMF team was not signed. However, the IMF released a statement indicating that virtual discussions will continue and that "considerable progress" was made on policy measures to address domestic and external imbalances.

As a prelude to the visit, the government of Pakistan abandoned the dollar peg last month, leading to a devaluation of the Pak Rupee by approximately 14% from January 26 to date.

In response, the finance minister announced in a press conference on Friday that an additional Rs170 billion in taxes will be imposed, the circular debt must be stopped, and energy sector reforms will be considered.

News reports suggest that the government will implement the tax and non-tax measures demanded by the IMF as a prior action through a Presidential Ordinance. Although the timeline may be subject to change, it is expected that the SLA will be signed in the next few weeks.

Following this, the IMF Board's approval is likely to come in about a month, paving the way for the disbursement of a $1bn tranche from the IMF and additional funding from the World Bank, ADB, and friendly nations.

According to assessments, funding from friendly countries, including Saudi Arabia, UAE, Qatar, and China, is crucial for the resumption of the IMF program. This funding, estimated to be worth over $5bn, may also be one of the IMF's demands before its Board approval.

It will be interesting to evaluate the Pakistan Country Report issued by IMF after the IMF board approval, the report stated further.

According to media reports, the fund has demanded the immediate lifting of restrictions on imports, with an estimated cost of $4bn needed to open Letters of Credit (LCs). It is yet to be seen what conditions the IMF has set for Pakistan's LC payments.

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