Pakistan is contemplating strategies to potentially increase its upcoming International Monetary Fund (IMF) bailout package from $7.5 billion to $8 billion by exploring climate finance options alongside the Extended Fund Facility (EFF).
Should this plan materialize, Pakistan could potentially raise the program size from $6 billion, as designated under the EFF, to either $7.5 billion or $8 billion, taking into account Islamabad’s specific quota available through Special Drawing Rights (SDRs).
Sources revealed to The News on Sunday that discussions about augmenting the program’s size were initiated while finalizing the ongoing Standby Arrangement (SBA) program in June 2023. However, at that time, the global lender did not entertain Pakistan’s request.
During that period, the IMF indicated that the SBA was a short-term program, hinting at the possibility of considering such requests in the future.
Presently, Pakistani authorities are considering a strategy similar to that of Bangladesh to boost the size of the upcoming program. They are exploring the potential of utilizing climate finance to augment the Extended Fund Facility (EFF) program.
Under the Resilience and Sustainability Facility (RSF) of the IMF, there exists an instrument that offers affordable long-term financing to nations engaged in reforms aimed at mitigating risks to prospective balance of payments stability, particularly those related to climate change and pandemic preparedness.
This facility aims to provide long-term financial support to bolster economic resilience and sustainability by:
- Supporting policy reforms that address macro-critical risks associated with climate change and pandemic preparedness.
- Expanding policy space and financial buffers to mitigate risks arising from longer-term structural challenges.
Countries eligible for access to the RSF must meet the following criteria:
- Implement high-quality policy reforms targeting long-term structural challenges of climate change or pandemic preparedness.
- Maintain an ongoing IMF-supported program with policies of upper credit tranche quality (UCT program).
- The program must fall under one of the following arrangements: SBA, EFF, PLL, FCL, SCF, ECF, PCI, or PSI. Emergency financing facilities (RFI, RCF), SMP, or SLL arrangements do not qualify.
- Ensure sustainable debt levels and demonstrate capacity for repayment.
Disbursements under the RSF are linked to reform progress, with each measure connected to a single disbursement. Reform measures can consist of single policy actions or closely related sets of actions forming a single reform. All actions within a measure must be implemented to unlock the associated disbursement.
The RSF reviews occur concurrently with reviews under the UCT program, following the expected completion date of a reform measure.
The financing structure includes a 20-year maturity period with a 10½ -year grace period, during which no principal repayments are due. Interest rates are affordable, with a modest margin over the three-month SDR rate. The terms are tiered across country groups, with more concessional terms for low-income members.
Pakistan recently approved the Public Investment Management Assessment (PIMA) framework, including the Climate-PIMA module, following the IMF’s technical report guidelines. This commitment reflects Pakistan’s efforts to enhance its public investment management (PIM) to foster economic growth, improve service delivery, and ensure public infrastructure resilience to climate change.
The assessment applies the IMF’s PIMA framework, highlighting recent strides in strengthening PIM and identifying areas for further institutional enhancement. Given the tight fiscal space and urgency of climate action, the assessment recommends targeted actions to advance reforms.
