Pakistan in crisis: IMF restraints hopes of early deal, foreign banks reluctant due to junk credit

Pakistan Shehbaz Sharif IMF International Monetary Fund

The International Monetary Fund (IMF) on Saturday said that it was still waiting for the “necessary financing assurances” for the successful conclusion of the review talks, dampening the expectations for a deal until Pakistan arranges the remaining USD 3 billion, Tribune reported.

In a statement, Nathan Porter, IMF Mission Chief to Pakistan, said that the IMF “looks forward to obtaining the necessary financing assurances as soon as possible to pave the way for the successful completion of the 9th Extended Fund Facility (EFF) review”.

The IMF was seeking confirmation for the total USD 6 billion loans that Pakistan urgently needs to bridge the external financing gap. They said that the government was trying hard to secure commitments for the rest of the USD 3 billion by next week, Tribune reported quoting sources.

Earlier this week, Finance Minister Ishaq Dar requested the IMF to show some flexibility and strike a staff-level deal which can pave the way for arranging the rest of the loans. The IMF had identified the USD 6 billion hole in Pakistan’s external financing requirement that it asked to be bridged before the matter was taken to the IMF’s board for approval of the next loan tranche.

Pakistan may take some time to arrange the rest of the loans. The government has mentioned loans from foreign commercial banks as one of the sources to bridge the gap.

But the finance ministry officials said that it will take four to six weeks in negotiations till a stage is reached for the foreign commercial loans to be disbursed. They added if the foreign commercial banks just give an assurance to the IMF, it will be sufficient to strike a deal.

However, foreign banks are reluctant to extend any fresh financing due to the junk credit rating of Pakistan.

The government also placed bets on the USD 450 million project proceeds from the Geneva pledges and expected to receive over half a billion dollars from the outsourcing of the three international airports, the two avenues that Pakistan may not tap immediately.

On Friday, Finance Minister Ishaq Dar announced that the United Arab Emirates (UAE) had given an assurance to the IMF for a USD 1 billion loan to Islamabad. Saudi Arabia had already made assurances for a USD 2 billion loan, according to the Ministry of State for Finance.

Nathan welcomed “the recent announcement of important financial support to Pakistan from key bilateral partners”, implicitly confirming the UAE and Saudi Arabian commitments. But the commitments are short of the requirements of Pakistan.

He further stated that the IMF was supporting Pakistan’s efforts to arrange the loans.

In order to bridge the financing gap, Dar had requested the World Bank and the Asian Infrastructure Investment Bank to provide USD 900 million in loans. But Pakistan has not met all the conditions set by the World Bank.

The Washington-based bank was also looking towards the IMF before approving any new budget support loan.

The IMF demanded an increase in the interest rates by at least 6 per cent when the key policy rate was 17 per cent. The central bank has already jacked up the rate to 21 per cent during the last two months but it is still short of the IMF’s requirement of having inflation-adjusted positive interest rates.

For the next fiscal year 2023-24, the IMF has projected a 21.9 per cent average headline inflation rate and the current real policy rate is still negative.

IMF had also shown concerns about inconsistent economic policies. The trust deficit had widened further after Prime Minister Shehbaz Sharif announced Rs50 per litre petrol subsidy for motorcyclists and small car owners of up to 800cc, Tribune reported quoting sources.


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