China’s $2.3 Billion Rollover Plan to Pakistan Amid Forex Crisis: Report
China on Thursday agreed to refinance Pakistan with $2.3 billion in funds amid the country’s dwindling foreign exchange reserves.
“Good news: the terms and conditions of the refinancing of a 15 billion RMB deposit by Chinese banks (about 2.3 billion US dollars) have been agreed. The inflow is expected shortly after some routine approvals on both sides. This will help strengthen our foreign exchange reserves,” Ismail tweeted.
The development comes as reinstatement of the country’s delayed International Monetary Fund (IMF) program hinges on the government’s ability to make a fiscal adjustment of around 2.5% of GDP.
Tax adjustments can be made by increasing revenue and reducing spending in the upcoming budget, Geo News reported quoting The News.
In order to demonstrate its commitment to implementing the “reform agenda”, the Pakistani government must end the gasoline and diesel price subsidy, increase electricity tariffs by Rs 8 per unit via an increase base tariff and fuel price adjustments and increase gas tariffs by an average of 20%.
Pakistan’s finance minister said on Tuesday that the staff-level agreement with the IMF was due to take place in mid-June this year. It also indicates that the agreement should only come after the announcement of the next budget, in line with the objectives of the IMF program.
However, the IMF wanted quick fiscal adjustments to put the economy back on the path to stabilization. The announcement of the next budget for 2022-23 aligned with IMF policies will pave the way for a stabilization trajectory, but here is the no-win situation: the government will have to make difficult decisions, instead of distributing resources to obtain support politics, Geo News reported citing sources.
In such a scenario, the IMF calls for raising the Federal Bureau of Revenue’s tax collection target to PKR 7.5 trillion for the next budget and reducing development funds as well as subsidies.
Although the government wanted to keep the prices of petroleum products unchanged at the current level from June 1, 2022, it will have to pass the burden on to consumers after the budget announcement.
The latest estimates suggest that despite the increase in the price of petroleum products by PKR 30 per litre, the subsidy on petrol still stood at PKR 39 per litre, which was previously PKR 17 per liter after the price increase May 27.