In a boost to dwindling forex reserves, SBP receives $1.16b IMF tranche

This will help improve SBP’s reserves and facilitate realisation of other planned inflows, says central bank

Two days after the Executive Board of the International Monetary Fund (IMF) revived Pakistan’s bailout programme, the State Bank of Pakistan (SBP) received proceeds of USD 1.16 billion (equivalent of SDR 894 million) from the global lender.

The IMF said that Pakistan’s economy will grow to around 3.5% but the average inflation rate is estimated at 19.9% -- the projections that had been made before the floods destroyed vast swathes of the country.

The global lender also approved an increase in the loan size to $6.5 billion and extended its expiry date till June 2023. The $6 billion original programme was going to end next month with half of the amount undisbursed due to failure of the PTI government to fulfil its commitments.

"Today, SBP has received proceeds of USD 1.16 billion (equivalent of SDR 894 million) after the IMF Executive Board completed the combined seventh and eight review under the Extended Fund Facility (EFF) for Pakistan," the central bank wrote on its official Twitter handle.

1/2 Today, #SBP has received proceeds of USD 1.16 billion (equivalent of SDR 894 million) after the IMF Executive Board completed the combined seventh and Eight review under the Extended Fund Facility (EFF) for Pakistan.

— SBP (@StateBank_Pak) August 31, 2022

"This will help improve SBP’s foreign exchange reserves and will also facilitate realisation of other planned inflows from multilateral and bilateral sources."

2/2 This will help improve SBP’s foreign exchange reserves and will also facilitate realization of other planned inflows from multilateral and bilateral sources.

— SBP (@StateBank_Pak) August 31, 2022

In its handout, the IMF emphasised the need to increase electricity prices and enhance taxes on petroleum products, as per the schedule agreed between Pakistan and the IMF.

Read more: IMF approves $1.1b tranche for Pakistan

“Efforts to strengthen the viability of the energy sector and reduce unsustainable losses, including by adhering to the scheduled increases in fuel levies and energy tariffs, are also essential,” said IMF Deputy Managing Director Antoinette Sayeh.

She said that containing current spending and mobilising tax revenues are critical to create space for much-needed social protection and strengthen public debt sustainability.

The IMF also stressed that Pakistan should keep following the policy of high interest rates and market-determined exchange rate.

In February this year, the previous government had assured the IMF board the resolve to stay on course but hardly a month later, the then government laid the landmines by giving subsidies and introducing another tax amnesty scheme, which led to collapse of Pakistan-IMF talks in March.

The board also waived off the conditions that Pakistan could not meet during January-June 2022 period. The PTI had tried to spoil the deal by manoeuvring the governments of Punjab and Khyber-Pakhtunkhwa to backtrack from their commitments to the IMF programme in retaliation to the case against Imran Khan under the Anti-Terrorism Act.

Read: IMF shares LoI with govt to seal loan deal

With the fresh approval, the disbursement would increase to $3.9 billion, leaving a balance of $2.6 billion that will be disbursed till June next year. The next IMF review will now take place in November to take stock of the performance of Pakistan’s economy for the July-September 2022 period.

The formal resumption of an IMF programme is a major step forward in our efforts to put Pakistan’s economy back on track. It is the outcome of an excellent team effort, tweeted Prime Minister Shehbaz Sharif. He patted Miftah Ismail and the Ministry of Finance and other stakeholders for pulling the country back from the brink of default.

The PTI had left Pakistan’s economy in tatters, compromised its relations with the international financial institutions and also severed ties with friendly countries and as a result, Pakistan’s financing was almost choked.