No date for disbursement of $3b Saudi bailout

Pakistan and the International Monetary Fund (IMF) may meet on the sidelines of the Geneva donor’s conference, said the Minister of State for Finance and Revenue Aisha Ghaus Pasha on Thursday – pinning hopes on Saudi Arabia for a bailout ahead of a $1 billion repayment due in the first week of January.

While speaking to the media after a parliamentary committee meeting, Pasha said, “Pakistan has requested a $3 billion loan from Saudi Arabia and our request is in process.”

Two months ago, Pakistan had requested a $3 billion loan from Saudi Arabia to avoid a looming default.

In an informal conversation with the media, when asked if the kingdom had communicated a date for the release of the funds, the minister said the question cannot be answered.

Pakistan’s gross official foreign exchange reserves have fallen to critically low level of under $6 billion and the country has to make two major payments, totalling $1.01 billion by the end of next week. In the absence of any major foreign inflow, the reserves could fall below $5 billion – a figure that is enough to press the panic button.

But Pasha was hopeful that Pakistan would not default and would make the $1 billion debt repayment next week. “Pakistan and the IMF are in contact but the fund is on recess till the end of next week. Hopefully, both sides will have a face-to-face meeting on the sidelines of the Geneva conference,” said the minister.

The international donor’s conference taking place in Geneva on January 9 will seek pledges from the global community to raise funds to rebuild Pakistan. The United Nations (UN) is cosponsoring the conference. Earlier, however, the UN received a very poor response to its two flash appeals for aid worth $860 million for flood relief in Pakistan. Pasha said the conference will also make clear how much money the donor’s community would be willing to contribute to the cause of rehabilitation.

Pakistan has identified a funding gap of $8.2 billion against the total flood rehabilitation requirement of $16.3 billion. “We will try to meet half of the total requirements from our own resources and the rest will be pitched to the donors,” said Secretary Planning Syed Zafar Ali Shah on Thursday.

While grants are always welcome – not all the pledges made at the donors’ conference will be grants – there will also be a component of concessionary loans, said Shah responding to a question about Pakistan’s expectations from the conference.

“The donor’s conference will not be a one-off event, as the money will be coming in even later,” he said. The world, however, is facing donor fatigue coupled with high inflation and biting interest rates, leaving very little appetite for a country like Pakistan – one that has not learned to live within its means.

Pakistan has assessed that its ability to fund the rehabilitation of the affected areas through federal and provincial budgets is limited to 30% or $4.9 billion, according to the Resilient Recovery, Rehabilitation and Reconstruction Framework prepared by the government.

The recovery financing strategy has estimated another 5% or $814 million to be received from community support organisations and 15% or $2.5 billion through public-private partnership models. The remaining $8.2 billion or 50%, however, has to come from foreign countries and multilateral creditors.

The IMF has been waiting for the recovery cost framework aimed at assessing the impact of the estimated cost, particularly short-term, on the remaining period of the $6.5 billion programme, ending in June next year.

The Secretary Planning stated that it would also spend about Rs400 billion from its own resources during the current fiscal year and money equal to $1.5 billion has already been spent.

It appears that the finance ministry and planning ministry are not on the same page, when it comes to making adjustments within the development budget to create the fiscal space for flood related expenses. The Ministry of Finance has communicated to the IMF that the Public Sector Development Programme (PSDP) will be cut by Rs250 billion to Rs469 billion in this fiscal year.

When asked whether the Ministry of Finance took him in confidence before communicating the Rs469 billion revised PSDP to the IMF, Shah said, “For us, this year’s PSDP is Rs727 billion.” Instead of slowing down development spending, the Planning Ministry has demanded more funds from the PM.

Published in The Express Tribune, December 30^th, 2022.

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