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IMF to discuss Pakistan’s budget plans as funding lifeline nears


Mar 21, 2007
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IMF to discuss Pakistan’s budget plans as funding lifeline nears

May 4, 2023

The International Monetary Fund (IMF) is preparing to discuss Pakistan’s budget plans for the coming financial year, as part of a long-awaited bailout tranche from the lender for the cash-strapped nation, the IMF’s Pakistan mission chief told Reuters on Thursday.

Negotiations over key budget targets such as the fiscal deficit are one of the last hurdles before the IMF approves a staff-level agreement to release $1.1 billion in funding, which has been delayed for months, that is crucial for Pakistan to resolve an acute balance of payments crisis.

A successful staff level agreement (SLA) for the 9th review, which has been pending since November, will unlock the $1.1 billion tranche.

The funding is a part of a $6.5bn bailout package the IMF approved in 2019, which is due to end in June, prior to the budget.

“In all IMF programmes, the authorities issue a letter of intent associated with the last review outlining their policy intentions for the period after the programme,” said Nathan Porter, mission chief to Pakistan.

Pakistan has been in economic turmoil for months with an acute balance of payments crisis while talks with the IMF to secure $1.1bn tranche have not been successful.


The ‘ninth review’ remains elusive

May 10, 2023

While the Board of Directors meetings of the International Monetary Fund (IMF) scheduled till 17 May 2023 do not have approval of Pakistan’s ninth review as an agenda item, an absence that can be easily rectified if the stalled staff-level agreement is reached before then, yet at this point in time it appears unlikely for two reasons.

First, Pakistan’s economic team leaders have reportedly briefed the Fund staff that the differential of 1.5 to 2 billion dollars between pledges from friendly countries (which have been received by Fund staff) and the required external resources would be generated from: (i) other multilaterals (World Bank and Asian Development Bank); and (ii) through borrowing from the commercial markets abroad (directly from commercial banks).

While the Fund staff may have easily verified the pledges by other multilaterals through routine coordination, yet the balance of the resources required by incurring debt remain highly suspect given that since 6 October 2022 when Moody’s downgraded Pakistan’s rating, there has been a persistent downgrade by international rating agencies, thereby rendering Pakistan deeper into junk territory. The reason is rather straightforward.

Pakistan’s continuing deteriorating finances are due to flawed policies that include continuously raising current expenditure (a 75 percent rise till end April 2023 from the comparable period of the previous year) and funding it largely through issuing Pakistan Investment Bonds (PIBs) with domestic banks as the major clients that, in turn, is not only highly inflationary but is also at the cost of private sector borrowing, thereby accounting for negative large-scale manufacturing sector growth and 0.8 percent gross national product growth. This in turn has raised the spectre of default and the periodic statements by Finance Minister Ishaq Dar that there is no threat of default are being summarily dismissed by markets, both within and outside the country, as simply not credible.

Second, there appears to be a trust deficit between the Fund staff and our economic team which appears to be widening rather than shrinking with time.

The Fund staff has been forced to counter claims by the Finance Minister that all the Fund conditions have been met, thereby implying that the onus of the stalled staff-level meeting rests solely with the Fund. In its latest release to the media dated 5 May 2023 the Fund noted that the “IMF continues to work with the Pakistan authorities to bring the ninth review to a conclusion once the necessary financing is in place and the agreement is finalised.”

While on a Fund programme the standard practice is for the Fund mission to review the budget document. This review was a component of the current year’s budget presented to parliament on 10 June 2022, that in turn led to the announcement of a staff-level agreement in a press release by the Fund dated 13 July, which noted that there was an agreement to combine the seventh/eighth review and “in order to support programme implementation and meet the higher financing needs in FY23, as well as catalyse additional financing, the IMF Board will consider an extension of the EFF until end-June 2023 and an augmentation of access by SDR 720 million that will bring the total access under the EFF to about US$7 billion.”

Reports indicate that the process for formulation of the budget for next fiscal year has been ongoing for some months and the presentation of the budget by the incumbent government was reconfirmed in a press briefing subsequent to a meeting between the PDM (Pakistan Democratic Movement) coalition government and PTI (Pakistan Tehreek-e-Insaf) team on setting an election date, of which the finance minister is a member and a lead player.

With less than one month remaining for the budget to be presented to parliament (scheduled date on 9 or 10 June as per government sources) it is not yet clear whether the government has begun sharing the data with the Fund, in spite of the Resident Representative of the IMF, in her interaction with a foreign news agency rather than with the Pakistani media, stating that the Fund would discuss budget plans for 2023-24 as part of the bailout tranche release.

Pakistan’s last recourse to avert default is to get fresh loans and seek rollovers of foreign debt

No one really knows where Pakistan will be in the next few months — thanks to our ruling elites.

PAKISTAN’S balance-of-payments troubles have spiralled into a full-blown economic crisis over the last several months. Amid stagnating growth and skyrocketing inflation, the crisis, exacerbated by sustained political conflict, has reached a point where it is threatening to destabilise the country as it faces the danger of sovereign default. The reasons are obvious.

Our ruling elites have borrowed heavily from just about everywhere to sustain their luxurious lifestyle for decades, without ever thinking that the world could one day stop financing or subsidising their extravagant ways.

The more immediate reason relates to the inability of our ruling classes to change their wasteful ways, despite warnings from our lenders and friends. It is not surprising that no one wants to fund us unless we make a strong commitment to implementing reforms and fixing our structural issues.

A report of the economic affairs ministry shows that Pakistan’s external financing pipeline is drying up. Multilateral, bilateral and commercial inflows (read: loans) went down by 38pc — or amount to just $8.1bn — in the first 10 months of the current fiscal year against over $13bn during the same period last year.

'False and unfounded': govt rejects reports IMF concerned about funds use for 'political purposes'

  • Finance Division says funds cannot be utilised for any purpose without the approval of the Parliament through the budget
May 20, 2023

The government on Saturday clarified that media reports stating the delay in signing the International Monetary Fund (IMF) agreement is due to the lender seeking assurances from the Ministry of Finance that the funds will not be used for political purposes are "false and unfounded."

"It is clarified that this news is false and unfounded as IMF has never raised any such concern with the Government nor any funds can be utilized for any purpose without the approval of the Parliament through the budget," the Finance Division said in a statement.

The development comes days after the IMF reiterated that it was working with Pakistani authorities to bring the pending ninth review to the conclusion “once the necessary financing is in place and the agreement is finalised”.

“In addition, the IMF supports the authorities in the implementation of policies in the period ahead, including in the technical work to prepare the FY24 budget, which is to be passed by the National Assembly before end-June,” Nathan Porter, the IMF Mission Chief for Pakistan, was quoted as saying in a statement to Business Recorder.

Pakistan remains engaged with the Washington-based lender to resume its bailout programme that has been stalled at the ninth review since November last year.

As part of prior conditions to resume funding, Pakistan was required to undertake a series of steps including new taxation measures, free-floating exchange rate, and hike in energy tariffs.

It was reported earlier that Pakistan is required to make debt payments of $3.7 billion in May and June, according to Fitch Ratings, which would cause further pressure on an already depleted level of foreign exchange reserves.

Pakistan’s policymakers have derived some hope from a current account surplus in March, which brings down the gap in financing, but securing fresh funding commitments – even after China’s rollover and another refinanced loan of $1.3 billion – remains the next hurdle.

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