Pakistan has signed an unrealistically tough agreement with the International Monetary Fund (IMF) in exchange for a $3.5 billion loan, which requires an increase in electricity and gas prices, a mini-budget, and a Rs534 billion cut in development spending as contingency measures.
The IMF released the combined report of the 7th and 8th reviews of the bailout package on Friday, which includes a Memorandum for Economic and Financial Policies – a document full of commitments made on behalf of the government of Pakistan by Finance Minister Miftah Ismail.
The document was required to revive the programme and extend it until June 2023 in order to receive a total $3.5 billion loan from the IMF from August 2022 to June 2023.
The plan’s unreality can be gauged by the fact that Pakistan assured the global lender that it would raise gas prices by up to 235% by the end of August – a deadline that it has already missed. Furthermore, the plan calls for closing commercial bank accounts of government agencies by the end of December and transferring cash to the central bank.
The Pakistan-IMF staff-level agreement is expected to change in the aftermath of the floods, though the IMF is unlikely to grant relief in areas where there is no direct impact on the flood-affected population.
According to the report, Pakistan has assured the IMF that if revenue collection slows or current expenditures begin to exceed targets, the government will implement a contingency plan that includes both the imposition of new taxes and the reduction of federal and provincial development expenditures.