Islamabad is eager to expedite the staff-level agreement to unlock financing, but the authorities continue to have differences with Fund staff over the amount of financing the country requires to stay afloat through the current fiscal year.
By Staff Reporter
ISLAMABAD: Pakistan has presented a revised external financing strategy to address the $5 bilion to $6 billion external deficit by the conclusion of June 2023 and has urged the International Monetary Fund (IMF) to promptly reach a staff-level consensus on a long-delayed bailout program, The News reported on Wednesday.
However, there are some differences between Pakistani authorities and the IMF regarding the financing requirements during the ongoing fiscal year.
The IMF is insisting on managing the $6 billion financing gap, while Pakistani authorities project the external financing gap to be up to $5 billion. The IMF has made it clear that Pakistan needs a credible plan to manage the financing of $6 billion for a staff-level agreement.
Pakistani officials, including Finance Minister Ishaq Dar, are currently visiting Saudi Arabia, and efforts are underway to sign a deal on additional deposits of $2 billion in a government-to-government deal. The UAE has already committed to an additional $1 billion deposit, and there is a possibility of further financial assistance from the friendly country. The Chinese government is also likely to provide an additional $1 billion through commercial banks.
The government is also optimistic that the project financing allocated for flood assistance will generate a favorable inflow of dollars.
Pakistan has informed the IMF that reaching a staff-level agreement would aid in obtaining additional financing from multilateral creditors and Abu Dhabi-based banks. The World Bank’s RISE program, with co-financing from AIIB, could result in $900 million in funding.
Officials said the government is in ongoing communication with the IMF to make concerted efforts toward achieving a staff-level agreement. However, outstanding issues remain, such as how the 10th and 11th Reviews would be undertaken when the ongoing Extended Fund Facility (EFF) program would be completed by the end of June 2023.
The IMF funding is critical for Pakistan as central bank reserves have fallen to critical levels, barely enough for four weeks of imports. Securing the long-due tranche, which can only be released after signing a staff level agreement (SLA), will also unlock other external financing avenues and help Pakistan avert a default on its obligations.
Pakistan has been negotiating with the IMF since early February for the resumption of the loan programme agreed upon in 2019 and the completion of its ninth review to secure the last tranche of $1.1bn under this facility.
Disagreements also persist between the IMF and Pakistan regarding the precise financing needs due to divergent assessments of the Current Account Deficit (CAD).
Pakistan is required to give an assurance that its balance of payments deficit is fully financed for the fiscal year ending in June to unlock the next tranche of IMF funding.
Last week the IMF said it was looking forward to obtaining the necessary financing assurances as soon as possible from Pakistan to conclude the long-awaited ninth review of a $7 billion loan programme.
Though Pakistan’s government repeatedly reiterated it has completed all requirements to receive the critical bailout money from the fund.
The IMF has estimated the external financing gap to be approximately $6 billion, whereas Pakistani authorities contend that it will remain between $4 billion to $5 billion due to the shrinking CAD.
The CAD has been reduced considerably, with a figure of $3.8 billion during the first eight months (July-Feb) of the fiscal year 2022-23, compared to $12.07 billion in the same period of the previous financial year. The government anticipates the CAD to be limited to approximately $4 billion during the current fiscal year, while the IMF suggests it could rise to $5-$6 billion if import restrictions are lifted.
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