Finance Minister Ishaq Dar told local broadcaster on Tuesday that he was hopeful the International Monetary Fund’s ninth assessment will be completed, allowing the lender to disburse $1.1 billion to the cash-strapped South Asian nation.
Meanwhile, Prime Minister Shehbaz Sharif said on Tuesday that he hoped for an IMF bailout decision within a day or two, capping off protracted negotiations as the country faces an extreme balance-of-payments crisis.
Islamabad is working against the clock to unlock $1.1 billion under the lender’s ninth review of a $6.5 billion Extended Fund Facility agreed upon January 2019. The scheme will end on June 30.
Here are some facts about the importance of unlocking the funds for the cash-strapped South Asian country of 230 million people and the challenges it has faced:
Tranched Delayed
Pakistan has completed eight of the eleven mentioned programme reviews, with the ninth review still pending as of November of last year. This is already the longest delay since at least 2008.
The ninth review will release a $1.1 billion tranche, leaving around $1.4 billion in unlocked funds. It is unclear whether an IMF deal would allow the entire sum to be released.
The ninth review had been halted due to disagreements between the fund and Islamabad regarding policy actions, such as external finance requirements and a budget that satisfies programme goals.
Crack in Finance
The government has budgeted $2.5 billion in IMF external receipts for FY24, which means the government is budgeting for the 10th and 11th reviews, as well as a new IMF programme once the current one expires.
Pakistan would require more than $22 billion in FY24 to service external debt, make interest payments, and finance its current account. Reserves are at a critical level of $3.5 billion, hardly enough to handle one month of restricted imports.
Because of macroeconomic uncertainties, Pakistan’s credit rating has suffered: Pakistan’s ratings have lately been reduced by three major rating agencies: Standard & Poor’s (CCC+), Moody’s (Caa3), and Fitch (CCC).
Additional Benefits
A successful evaluation would not only release much-needed finances, but would also free up credit from other bankers seeking for the IMF to give the struggling $350 billion economy a clean bill of health. This involves borrowing from the private market.
The government has received $3 billion in finance guarantees from friendly countries Saudi Arabia and the United Arab Emirates, while China has given loan rollovers.
National elections are scheduled for November of this year, and the government has stated that the choice to join a new IMF programme will be made by the incoming administration.
Difficult circumstances
The initial draught of the budget presented in parliament earlier this month did not match IMF expectations, but it was quickly changed to include new taxes and spending cutbacks. In addition, the country’s central bank raised the benchmark rate by 100 basis points in an emergency meeting on Monday, just two weeks after holding the rate constant in a planned meeting.
Following meetings in Paris this month between Sharif and IMF Managing Director Kristalina Georgieva, followed by long meetings between IMF personnel and finance ministry officials, hopes for a last-minute bailout increased.
