By Staff Reporter
ISLAMABAD: Pakistan is in talks with the International Monetary Fund (IMF) for a new six-to-nine-month loan of about $2.5 billion, as it seeks to complete a bailout program that expires at the end of this month.
The short-term loan, known as a standby arrangement, would help the country bridge the gap until a new government is elected in the second quarter of the fiscal year, Dawn newspaper reported on Wednesday.
The loan would be equivalent to the remaining amount of the $6.5 billion extended fund facility that Pakistan has been unable to draw since October 2022.
The discussions are at an advanced stage and have involved Prime Minister Shehbaz Sharif and IMF Managing Director Kristalina Georgieva, an official said.
Pakistan and the IMF have agreed on a memorandum of economic and financial policies for the ninth review of the program. But the IMF’s rules don’t allow for fast-track reviews, especially when the program’s one-year extension ends on June 30, Georgieva told Sharif in Paris.
Pakistan has met all the conditions and prior actions for the ninth, tenth, and eleventh reviews of the program, including a revised budget with additional taxes and spending cuts, and a record-high interest rate hike to 22 percent.
The IMF confirmed that Pakistani authorities have completed policy actions swiftly and that discussions are ongoing on the next steps. “We will communicate when we have more information,” an IMF spokesperson said in an email.
Pakistan has two options: either to receive a one-off disbursement of $1.1 billion for the ninth review and end the program, or to enter a new standby arrangement with upfront disbursement of the same amount, followed by two or three more installments of up to $500 million each, the official said.
The first option would unlock $1.2 billion of tranche but also end the program without access to two more tranches worth $1.4 billion. The latter option would allow Pakistan to secure the full $2.5 billion that was approved by the IMF board.
The government prefers the second option as it would signal stability to the markets amid political uncertainty, the official said.
“This would help shore up market confidence as the government prepares to hand over power to a caretaker administration ahead of elections.
However, it may have to raise fuel taxes by up to 5 rupees per liter and expedite electricity tariff adjustments by 5 to 8 rupees per unit from July 1 to secure the new loan.
Both options require a staff-level agreement by June 30 and approval by the IMF executive board soon after.
Pakistan entered a three-year extended fund facility with the IMF in July 2019 to address its balance-of-payments crisis. The program was extended by one year in June 2021 due to delays caused by the coronavirus pandemic.
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