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IMF divided over request by Pakistan, other borrowers to suspend surcharges

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  • Argentina, Pakistan, others pushing IMF to drop or waive surcharges
  • US, Germany, Switzerland and other oppose change
  • IMF estimates surcharges will cost affected borrowers $4 billion

WASHINGTON: The International Monetary Fund’s (IMF) executive board on Monday discussed the surcharges it collects from mostly middle- and lower-income countries on larger loans that are not repaid quickly, but failed to agree to launch a formal review.

Argentina, Pakistan and others are pushing the IMF to drop – or at least temporarily waive – the surcharges, which the IMF estimates will cost affected borrowers $4 billion on top of interest payments and fees from the start of the COVID-19 pandemic through the end of 2022.

The United States, Germany, Switzerland and other advanced economies oppose a change, arguing that the fund should not change its financing model at a time when the global economy is facing significant headwinds.

An IMF spokesperson said the board discussed potential changes to the policy during its regular review of the global lender’s precautionary balances, but failed to reach consensus on reviewing the policy.

“Overall, views on changes to the surcharge policy continued to diverge, including on the merits of a temporary waiver of surcharges,” the spokesperson said.

No details were provided, but the fund said it would publish a staff paper and a press release in coming days that would provide a fuller account of the board’s deliberations. No date was set for any further board discussion.

Kevin Gallagher, who heads the Global Development Policy Center at Boston University, said big shareholders should rethink their opposition, given the global economic outlook.

“This is the most urgent time to address a fundamentally flawed business model where the IMF is generating revenues by taxing those most in need,” Gallagher said.

But it was notable, he said, that the IMF’s shareholders had failed to outright reject a review.

“One silver lining is that the biggest shareholders … didn’t have enough strength to kill the proposal,” he said.

Stalemate persists between IMF and Pakistan 

Talks between Pakistan and IMF are at a stalemate with global lender pushing Islamabad on policies and reforms needed to keep the bailout programme’s targets on track and complete the pending ninth review.

“… a key purpose of program reviews in Pakistan, as in all program countries, is to evaluate both program performance to date, as well as, forward-looking, whether the program is on track or policy measures are needed to meet program targets, advance reform objectives, and maintain macroeconomic stability going forward,” Esther Perez Ruiz, IMF’s Resident Chief in Pakistan, said in a written reply.

An IMF review for the release of the next tranche under bailout funding has been pending since September. 

The broader agreement on the revised macroeconomic framework could pave the way for evolving consensus on a staff-level agreement for the completion of the 9th review under the $7 billion Extended Fund Facility.

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In a first for history, PSX crosses the 77,000 milestone.

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At 77,213.31, the benchmark KSE-100 hit an all-time high, up 1,005.15, or 1.32%, from the previous close of 76,208.16.

The government’s readiness to seal an agreement with the International Monetary Fund (IMF) following the budget was cited by analysts as the reason for the upward trend.

Experts anticipate that in an attempt to bolster its position for a fresh bailout agreement with the International Monetary Fund (IMF), the budget for the fiscal year ending in June 2025 would set aggressive fiscal goals.

Budget for Pakistan, 2024–2025
Pakistan’s budget for the fiscal year 2024–25, with a total expenditure of Rs18.877 trillion, was presented on Wednesday by Minister of Finance and Revenue Muhammad Aurangzeb.

The Finance Minister, Muhammad Aurangzeb, outlined the budget highlights. He stated that the GDP growth target for the fiscal year 2024–25 is set at 3.6 percent, while the inflation rate is anticipated to stay at 12 percent.

He stated that while the primary surplus is anticipated to be 1.0 percent of GDP during the review period, the budget deficit to GDP is forecast to be 6.9 percent over the period under review.

According to the minister, tax income collection increased by 38% in the current fiscal year, and the province will receive Rs7,438 billion. The Federal Board of income expects to earn Rs12,970 billion in revenue for the upcoming fiscal year.

In contrast to the federal government’s projected net income of Rs9,119 billion, he stated that the federation’s non-tax revenue projections are set at Rs3,587 billion.

The federal government’s total outlays are projected to be Rs18,877 billion, with interest payments accounting for the remaining Rs9,775 billion.

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Pakistan currently has $14.38 billion in foreign exchange reserves.

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Pakistan’s commercial banks’ reserves, which stood at $5.28 billion at the conclusion of the week ending on June 7, rose by US$174 million, according to a central bank statement.

Reserving US$6.2 million less, the SBP now has US$9.10 billion in reserves. The causes for the decline in the reserves it had were not disclosed by the central bank.

The SBP released a statement that stated, “SBP reserves decreased by US$ 6 million to US$ 9,103.3 million during the week ended on 07-June-2024.”

The State Bank of Pakistan’s (SBP) foreign exchange reserves were reduced by US$ 63 million as a result of repaying external debt, with the reserves standing at US$ 9.093 billion as of earlier on June 6.

The central bank spokesperson said in a statement that as of the week that concluded on May 31, the nation’s total liquid foreign reserves were $14.31 billion.

In terms of net foreign reserves, commercial banks have US$ 5.22 billion of the overall foreign reserves, according to the SBP.

SBP reserves dropped by US$ 63 million to US$ 9,093.7 million during the week that ended on May 24, 2024, according to the announcement.

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In the local market, the price of gold plummets to Rs240,700/tola.

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Gold with a 24-karat purity level has dropped by Rs1200/tola on the local market.

Each tola of 24-karat gold is now selling for Rs240,700, with a further drop of Rs1029 bringing the price of 10 kilos of gold to Rs206,361. These figures are courtesy of the All Sarafa and Jewelers Association.

Meanwhile, after a $2 decline on the global market, one ounce of gold will be valued $2315.

A tola of gold was worth Rs 600 more on Wednesday.

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