Pakistan Seeks Larger IMF Loan, Considers Revisiting Revenue Sharing with Provinces

Pakistan seeks larger IMF loan to revive economy, rejects proposal to revisit revenue-sharing with provinces, aims to avoid significant rupee devaluation.

Rizwan Shah
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Pakistan Seeks Larger IMF Loan, Considers Revisiting Revenue Sharing with Provinces

Pakistan Seeks Larger IMF Loan, Considers Revisiting Revenue Sharing with Provinces

Pakistan's new government is seeking a larger and longer loan from the International Monetary Fund (IMF) as part of its efforts to revive the country's economy.

Finance Minister Muhammad Aurangzeb stated that the government does not anticipate any significant currency devaluation as part of the IMF negotiations, which are aimed at unlocking billions of dollars in lending and bolstering the country's economic reform agenda.

Pakistan expects an IMF mission to visit in May and aims to reach a staff-level agreement on its next loan by the end of June or early July. The exact amount being sought was not specified, but earlier reports suggested Pakistan plans to request at least $6 billion. The government is also considering revisiting the revenue-sharing arrangement with the provinces to address fiscal challenges.

The IMF had previously reached a staff-level agreement with Pakistan to disburse $1.1 billion, which is the final tranche of a $3 billion rescue package secured last summer. Pakistan is now seeking another long-term bailout from the IMF as it struggles with record inflation, currency devaluation, and shrinking foreign reserves.

Why this matters: Pakistan's pursuit of a larger IMF loan and potential changes to its revenue-sharing system with provinces highlight the country's ongoing economic challenges. The success of these negotiations and reforms could have significant implications for Pakistan's financial stability and growth prospects.

However, the government has rejected the IMF's proposal to revisit the National Finance Commission (NFC) award, which determines the distribution of revenues between the federation and the provinces. Officials have stated that the government will not accept any advice from the IMF that goes against the Constitution, and the provinces' share under the NFC cannot be decreased.

The new government, led by technocrats, is seeking to negotiate new loans from the IMF and address the country's economic challenges. Key objectives include broadening the tax base, improving debt sustainability, and restoring viability to the energy sector. Pakistan needs to repay around $24 billion in external financing needs in the next fiscal year, which is about three times its current reserves.

Finance Minister Aurangzeb has assured that devaluation of the Pakistani rupee is not anticipated in the ongoing IMF negotiations, stating that there is no justification for the rupee to depreciate beyond the usual annual fluctuation of 6% to 8%. The government has also expressed its intent to support key sectors like agriculture and information technology to push economic growth above 4% in the next few years.

Key Takeaways

  • Pakistan seeks larger, longer IMF loan to revive economy; no major rupee devaluation expected.
  • IMF mission to visit in May, Pakistan aims for staff-level agreement by June/July on new loan.
  • Pakistan rejects IMF proposal to revisit revenue-sharing with provinces, says it's unconstitutional.
  • New govt. aims to broaden tax base, improve debt sustainability, restore energy sector viability.
  • Pakistan needs to repay $24 billion in external financing needs next fiscal year, 3x current reserves.