Why is Pakistan’s SBA still not on IMF executive board agenda?

A staff-level agreement has been inked for the $3 billion bailout, but the unnecessary uncertainty over the executive board’s approval is hurting Pakistan’s beleaguered economy.

By Muhammad Ali

ISLAMABAD: Pakistani authorities are certain the International Monetary Fund (IMF) Executive Board will affix its seal of approval on a fresh $3 billion bailout package on July 12, 2023. Esther Perez Ruiz, the Fund’s resident chief based at Islamabad, concurs, although she prefers the vague term “mid-July” instead of naming a specific date for the board’s approval of the Stand-By Arrangement (SBA).

The Board indeed has a meeting scheduled for July 12 – but its published agenda fails to mention Pakistan. The two items on the agenda are: Germany – 2023 Article IV Consultation; and Euro Area – Common Euro Area Policies with Member Countries.

The IMF Executive Boar’s calendar “is subject to change”, says the Fund, adding, “the agenda for each meeting is typically finalized the day before the meeting.” By that account, the board may put Pakistan on its agenda on Tuesday, but some hand wringing is already underway in Pakistan, casting doubts over whether the crucial decision will arrive on schedule.

Pakistani authorities, including the prime minister and the finance minister, have put their credibility on the line by publicly stating that the Board’s approval will arrive on July 12. Officials speaking on background say they have the word from within the Board – probably from an executive director who represents Pakistan on the Board as director alternate.

However, it is unusual for the IMF to not include a country’s request on its Board calendar seven to ten days prior to the meeting. The situation is therefore casting a long shadow of uncertainty over Pakistan’s economy.

Possible reasons for delay

There are a few possible reasons for the delay. The IMF is still reviewing Pakistan’s economic policies and reforms, and it is possible that the Board will not make a decision on the SBA request until it is satisfied with the progress that Pakistan has made. The IMF typically requires countries to implement certain economic reforms before it will approve a bailout package, and it is not secret that it has handed Pakistan a to-do list.

Another possibility is that the IMF is waiting for last minute information about the global economic situation. The global economy is currently facing a number of challenges, including high inflation and rising interest rates. The IMF could be waiting to see how these challenges play out before making a call on Pakistan’s SBA request.

If the IMF does not approve Pakistan’s SBA request on July 12 or soon afterwards, a new round of instability is likely to hit the Pakistani currency and stock markets. It could also lead to capital flight from Pakistan, further exacerbating the chronic paucity of foreign exchange.