Virendra Pandit
New Delhi: Expecting a quick relief from the international lender, a nearly bankrupt Pakistan discovered on Wednesday that the proposed cure is as scary as the disease itself.
After dilly-dallying, the International Monetary Fund (IMF) revived its stalled USD 6 billion loan program for Pakistan with three tough pre-conditions: raise electricity tariffs, increase petroleum prices by Rs. 50 per liter to collect Rs.855 billion, and scrap the government’s role in determining the oil prices.
The IMF’s demands came amid the government’s decision to seek the National Assembly’s approval on Wednesday to amend the Petroleum Products (Petroleum Levy) Ordinance, 1961. The amended law would slap a levy of Rs. 50 per liter on petroleum products like high-speed diesel, petrol, high octane blending component (HOBC), E-10 gasoline, superior kerosene oil, and light diesel. It has also proposed a levy of Rs 30,000 per metric ton of liquefied petroleum gas (LPG).
The IMF also asked Pakistan to set up an anti-corruption task force to review all the existing laws aimed at curbing graft in the government departments, according to the media reports.
After implementing the conditions, the IMF would present Pakistan’s request for the approval of the loan tranche and revival of the program to its executive board, which may take another month.
In its draft Memorandum for Economic and Financial Policies (MEFP) document, the IMF has proposed to club the two pending program reviews–the 7th and 8th–but did not show it would also approve loan tranches of up to USD 2 billion.
The MEFP will form the basis for the staff-level agreement that now Pakistani authorities will try to achieve at the earliest.
However, Finance Minister Miftah Ismail said Pakistan had received the MEFP document that showed the merger of the seventh and eighth reviews of the bailout program and the country would receive USD 2 billion in loans after their approval.
The existing IMF program shows that the approval of the 6th and 7th reviews by the Executive Board of the IMF should pave the way for the release of roughly USD 960 million worth of two loan tranches totaling USD 1.9 billion. However, this schedule will be amended after the merger of the two reviews.
The two sides will now discuss increasing the loan size to USD 1.9 billion.
Earlier, the IMF had also clubbed four reviews –second to fifth reviews- but without increasing the loan tranche size. It had only given USD 500 million as against the USD 2 billion of four reviews.
The IMF has asked Pakistan to end the government’s role in setting the fuel prices after the bitter experience of giving fuel subsidies of over Rs 300 billion. The global lender has set a prior condition that the fuel prices will be deregulated and automatically adjusted to recover the actual cost of buying from the consumers.
The government’s taxes will be over and above the global prices. This means the petrol price may change every day at the filling station. At present, the government determines the fuel prices every fortnight, a discretion the IMF now wants to end.
Besides, the global lender has set prior action of notifying over Rs3.50 per unit increase in electricity prices from July. The Economic Coordination Committee (ECC) of the Cabinet has already approved increasing the electricity tariffs by Rs7.91 per unit in three phases but its final notifications remained pending.
Pakistan has committed to the IMF to impose an Rs.10 per liter petroleum levy on petrol and diesel from July 1.
The IMF has asked Pakistan to communicate the Cabinet’s nod to further increase the petroleum levy by Rs10 per liter on petrol and Rs 5 on diesel from August 1.
The revised budget documents the government presented in the National Assembly on Tuesday showed the petroleum levy target has now been set at a record Rs. 855 billion–up from Rs 750 billion proposed on June 10.
The government has also made adjustments in expenditures and the total size of the budget is now Rs 9.6 trillion.