ISLAMABAD  -  Pakistan believes that International Monetary Fund (IMF) would approve bailout package worth of $6 billion in its executive board meeting on July 3, 2019 as Islamabad has taken all advance actions agreed with the Fund.

Pakistan had agreed with the IMF for taking tough economic decisions before the Fund executive board meeting, which would consider approving loan programme for Islamabad. An IMF mission led by Ernesto Ramirez Rigo visited Pakistan from April 29 to May 11, to discuss IMF support for the authorities’ economic reform programme. On 12 May 2019, Pakistani authorities and the IMF team reached a staff level agreement. The agreement is subject to IMF Executive Board approval, which would meet on July 3.

Pakistan has met IMF’s prior conditions including a market based exchange rate, a raise in the discount rate and 0.6 percent primary deficit in budget for fiscal year 2019-20. In last couple of days, the rupee value has gone down to historic low level. The US dollar rose by Rs2.34 in the interbank market to reach Rs164.5 on Thursday. Market sources are of the view that Pakistan had agreed with IMF to take the dollar value to Rs165 before its executive board meeting. Pakistani currency is under pressure since Islamabad and IMF had reached on staff level agreement in May 2019. Since May 12, 2019, the dollar value had gone to Rs162 from around Rs140.

Meanwhile, the Economic Coordination Committee (ECC) of the Cabinet on Wednesday approved in principle up to 191 per cent increase in gas price. The government has also given approval to increase the electricity price by Rs1.5 per unit. However, there would be no increase for the domestic consumers using up to 300 units per month. Pakistan in staff level agreement with IMF had agreed to increase the prices of gas and electricity to reduce the soaring circular debt and losses. As per plan, the government would increase the power tariff by Rs2.60 per unit in two stages, enhancing g the tariff to Rs 15.58 per unit from existing rates of Rs 12.98 per unit. Sources said that government would further increase the power prices in next few months.

The SBP had already increased hiked the key interest rate by 150 basis points to a 91-month (nearly eight-year) high at 12.25 percent in anticipation of acceleration of inflation under the IMF loan programme. The government had agreed to increase the key interest rate by two percentage points under the 39-month IMF loan programme worth $6 billion. Accordingly, the latest rate hike was a must to get IMF board’s final approval for the loan.

Another demand was reduction of 0.6 percent primary deficit in budget for fiscal year 2019-20. The next year’s overall deficit would be Rs3.151 trillion or 7.2 percent of the GDP. This was mainly because the government has committed to the IMF that it will undertake a fiscal adjustment equal to 0.6pc of GDP in the primary deficit given a massive bill of Rs2.891 trillion in interest payments due next year. The primary deficit is the difference between revenues and expenditures after debt servicing has been removed from the latter.