By Staff Reporter
ISLAMABAD: Pakistan’s efforts to secure additional financing have been met with delays in striking a staff-level agreement with the International Monetary Fund (IMF), with authorities now blaming the Fund for using “dillydallying tactics”.
After securing confirmations from Saudi Arabia and the United Arab Emirates on additional financing of $3 billion, the authorities have hoped to quickly strike a Staff Level Agreement (SLA) with the IMF. However, the process has been prolonged for two and a half months, with Pakistan’s finance managers attributing the delays to politics and IMF’s excuses.
The recent pledges from friendly middle eastern countries will provide much-needed support to Pakistan’s struggling economy, which has been hit hard by the Covid-19 pandemic, devastating floods, and a balance of payments crisis. However, the IMF’s approval is crucial to unlocking further funding and restoring investor confidence in the country.
According to detailed background discussions held during the Eid holidays, Pakistani policymakers expected the SLA to be struck much earlier, with Minister for Finance Ishaq Dar claiming in February that the agreement would be signed within a few days. Despite passing two and a half months since then, there has been no agreement reached.
The thorny issue of the financing gap is still up for discussion. The IMF had initially assessed an external gap of $6 billion until the end of June 2023, which the Pakistani side disputed, arguing that the current account deficit would shrink to around $4 billion in the current fiscal year. After passing the first nine months of the fiscal year, the current account deficit hovered around $3.4 billion, with a surplus of $654 million recorded in March 2023.
The IMF revised its external financing requirement projection downward to between $4 to $5 billion for the current fiscal year. It assessed that if Pakistan relaxed its restrictions on imports in May and June, the current account deficit might escalate up to $5 billion, but if the restrictions persisted, it would stand at $4 billion.
With the confirmation of $3 billion in additional financing, the finance ministry now claims that the SLA should be struck up so that the remaining external financing of $1 to $2 billion could be managed, provided the IMF program is revived back on track. They also pitched that the World Bank’s RISE and AIIB co-financing program loan could fetch $900 million, but the IMF considers World Bank loans in a risky zone until the end of June 2023.
Commercial loans from Dubai-based banks will only be possible when the country’s credit ratings improve after the restoration of the IMF program. However, there is still an unresolved issue regarding the Pakistani government’s proposed cross-fuel subsidy, which has not been scrapped despite the IMF not granting permission to execute it.
The recent announcement of an additional $3 billion in financing from Saudi Arabia and the UAE is a positive development that could help bridge the financial gap in the country. However, to achieve a successful conclusion, a resolution with the IMF is still necessary. Ministry officials are concerned that delays in reaching an agreement with the IMF have hindered the country’s efforts to secure additional financing from other sources.
The ninth review under the Extended Fund Facility (EFF) cannot be accomplished, and the timeframe for holding parleys for completion of the 11th review will become due on May 3, 2023. It is not yet clear how both sides will proceed to accomplish this EFF program when its three reviews are pending, and the program stipulated timeframe is going to expire on June 30, 2023. Despite the challenges, the Pakistani government remains hopeful that a resolution can be reached with the IMF to secure the remaining external financing needed to complete the EFF program successfully.
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