Govt agrees to accept IMF demands including electricity & Gas price increase

There was an on going deadlock between Government of Pakistan and the International Monetary Fund (IMF) on disbursement of next iteration of funds to Pakistan due to four demands of IMF. As after the floods and the political instability Pakistan’s economic situation got worse, so IMF thought until and unless Pakistan takes some more measures to collect funds, it will not go forward with disbursement of next over one billion US dollar funds.

Government first has been hesitant on accepting the different action items on the IMF’s demand list but after the foreign reserves got dangerously low and other lenders have linked their lending process to IMF’s fund disbursement, govt of Pakistan left with no other option to accept the demands of IMF.

Recently when Pakistan contacted saudi arabia for a loan package, they did showed the commitment to help the countries like Pakistan and Turkey etc in bad times. However, they have also asked Pakistan to improve its processes and collect more taxes. They said, Saudi Arabia collects all the money via its taxes from its people so they also have responsibility and are answerable to them, so countries like Pakistan will need to do more to improve their tax collection. Basically, they were communicating that you should also take measures which put you in position so that you can surely pay back the loans.

Talking of the four main action points, which Pakistan government have showed commitment to accept and implement are as follows.

  • Market based exchange rate of foreign currencies like US Dollar
  • Increase in the price of electricity by Rs. 7 per KWh
  • Increase in the price of Gas by Rs. 750 per MMBtu
  • Additional taxes to make up for the loss of revenue due to floods, to keep the fiscal deficit in the range originally set

Pakistan government have already requested the IMF to send a mission to Pakistan to revive the agreement of loan program on the terms of IMF. The mission will be assured about the implementation of terms and the agreement will be signed.

Pakistan’s economy is suffering badly right now due to lack of foreign exchange reserves. To deal with this, govt of Pakistan introduced many curbs on imports while the remittances of Pakistan have gone down in recent months. Also due to imports curbs, the industries of Pakistan are suffering badly, one such example is auto industry in which many auto manufacturers have closed the manufacturing plants due to shortage of supplies. Pak Suzuki alone had their production plant closed for the third week in a row in the last week.

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