Pakistan and the International Monetary Fund (IMF) have agreed to extend the stalled bailout programme of $6 billion by one year and increase the loan size to at least $8 billion, a step being seen as an important breathing space for the Shehbaz Sharif-led government.
The decision was taken after consultations between Pakistan Foreign Minister Miftah Ismail and IMF Deputy Managing Director Antoionette Sayeh in Washington.
However, the decision is pending to completion of some strict and difficult demands, which include cancelling subsidies on petroleum announced by former premier Imran Khan. The demands also include increasing energy tariff in order to meet the demand for the revival and extension of the IMF loan proramme.
"IMF had asked Pakistan to withdraw fuel and electricity subsidies that former premier Imran Khan had announced on February 28 in total disregard for fiscal prudence and to gain the lost support due to double-digit inflation in the country," sources said.
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Subject to the final modalities, the IMF has agreed that the programme will be extended by another nine months to one year as against the original deadline of September 2022.
The previous Imran Khan government had signed the IMF bailout package worth $6 billion for a period of at least 39 months in July 2019. But the government failed to fulfil its commitment and the programme remained stalled for most of the time and at least $3 billion remained undisbursed.
"Before taking Pakistan's case to the IMF board for approval, Islamabad would have to agree on the budget strategy for the next fiscal year 2022-23," said an official source.
The failures of the previous government have posed a major challenge for the current government of Prime Minister Shehbaz Sharif, which will have to demonstrate that it would undo some wrong decisions taken by the former regime against the commitments that it gave to the IMF board in January this year.
It is pertinent to mention here that IMF's two-year extension, coupled with an additional $2 billion, would bring some clarity in economic policies and shred some uncertainty from the country's economic woes.
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"To give a final shape to the extended programme, an IMF mission would visit Pakistan likely from May 10," said an official source.