ISLAMABAD: The coalition government was making efforts to reach a staff-level agreement with the International Monetary Fund to unlock the delayed funding of over $1 billion, sources said on Friday. Experts have described the inflow as a “must” to unlock funding from friendly and other donors.

The development comes after the central bank increased the interest rate by 300 basis points and the rupee depreciated by more than Rs25 in this business week.

The international lender was informed about all such decisions during a virtual meeting on Thursday. Sources said that the government has assured the IMF of keeping monetary policy tighter and market-driven exchange rate would be maintained.

It also informed them about the Economic Coordination Committee’s decision to impose an additional surcharge of over Rs3 on electricity consumers from across the country for the next fiscal year which would generate Rs335 billion.

Pakistan has hinted at a summoning monetary policy meeting in a month, sources added. The government has also assured of meeting the revised annual tax target of Rs7,640 billion. It also informed them about the Kissan Package and ending the subsidy on electricity bills for the export sector.

Prior actions

The IMF’s prerequisites are aimed at ensuring Pakistan shrinks its fiscal deficit ahead of its annual budget around June, Reuters reported.

Pakistan has already taken most of the other prior actions, which included hikes in fuel and energy tariffs, the withdrawal of subsidies in export and power sectors, and generating more revenues through new taxation in a supplementary budget.

The fiscal adjustments demanded by any deal, however, are likely to add to record-high inflation, which hit 31.5% year-on-year in February, analysts say.

To try to tackle soaring inflation, shore up its currency and fulfil another IMF demand, Pakistan’s central bank announced on Thursday a larger-than-expected 300 bps interest rate hike.

Bringing forward a meeting that had originally been scheduled for March 16, policymakers lifted the key lending rate to 20% - its highest level since October 1996.

Bilateral and multilateral external financing are among the other IMF demands, but progress has been slow.

Long-time ally China is the only country that has refinanced $700 million to Islamabad.

Speaking at a regular China foreign ministry media briefing on Thursday in Beijing, spokeswoman Mao Ning said China and Pakistan were “all-weather strategic partners and solid friends” and called on all creditors to “act together and play a constructive role in stabilising Pakistan’s economy and society.”

Pakistan’s international bonds suffered sharp declines.

Some issues shed more than three cents on the dollar and the premium demanded by investors to hold the bonds over safe-haven US Treasuries rose sharply, with both at levels last seen in early January.