The government has placed its bets on the materialisation of Geneva pledges to partially meet the $6 billion financing gap amid the deepening trust deficit with the International Monetary Fund (IMF) because of its decision to give subsidy on petrol despite a looming default.
Both Pakistan and the IMF were still in the process of finalising the details about the source of financing of $6 billion when Islamabad gave a shock to the global lender by announcing a Rs50 per litre petrol subsidy.
The decision to give the subsidy has given a message to the rest of the world that the Pakistani authorities were still not serious enough to bring its house in order.
Sources said before formal virtual conversations ended, both the sides were discussing the contours of the $6 billion financing.
Except for the sum of $3 billion known assurances by Saudi Arabia and the United Arab Emirates, Pakistan lacked firm details about the financing of the remaining amount.
“We have requested the IMF to consider $450 million to $700 million financing out of the $9.7 billion Geneva pledges,” said the sources.
“However, the chances that Pakistan would receive half a billion dollars against the Geneva pledges are very slim,” they added.
“Although the $450 million amount may not appear big, it is important for reaching the $6 billion digit,” said the sources.
“Pakistan wants to arrange the rest of the $3 billion through project financing and commercial loans amid the IMF’s doubts about Pakistan’s ability to immediately raise commercial debt,” said the sources.
This was amid the IMF’s doubts about Islamabad's ability to immediately raise the commercial debt.
The IMF had asked Pakistan to materialise half of the $6 billion before the board meeting -- a demand that Pakistan might not meet as the foreign commercial banks were not ready to lend money without the global lender’s umbrella.
“A staff level agreement will follow once the few remaining points, including the authorities' recently announced fuel subsidy scheme, are closed,” stated Esther Perez, the resident representative of the IMF.
Finance Minister Ishaq Dar wanted that the IMF should consider Pakistan’s request for a loan in its March 24 meeting. However, both sides have been unable to reach a staff-level agreement since February 9.
Prime Minister Shehbaz Sharif’s decision to give a petrol subsidy created another credibility challenge in the eyes of the IMF.
The IMF has sought the details of the petrol subsidy, which the government has not yet provided to the global lender.
The Petroleum Division prematurely announced the subsidy, raising alarm bells in Washington.
The relations between both the sides have again soured at a time when the country’s foreign exchange reserves remain critically low at around $4.4 billion in spite of $1.7 billion Chinese injection.
Last Friday, China had transferred a $500 million commercial loan, which was almost fully exhausted in three days because of some maturing repayments, according to the sources.
The government will have to move decisively on the IMF front, as it needs to make $4.1 billion debt repayments in the last quarter of this fiscal year.
China has not yet rolled over a $2 billion debt that matured on Thursday.
However, it was a “procedural delay”, according to diplomatic sources.
In January, bilateral and the multilateral creditors had announced pledges worth $9.7 billion for flood rehabilitation and reconstruction activities at the Geneva conference.
The Express Tribune had reported that the Islamic Development Bank (IDB) had thrice counted a regular $1.2 billion annual oil financing facility.
The sources said the majority of the $9.7 billion pledges at the Geneva conference were not new funds.
Instead, the donors and the lenders have repurposed their existing financing pipelines towards flood-related activities.
They added that of the $4.2 billion loan that the IDB had pledged at the Geneva conference for the reconstruction of the flood-damaged infrastructure, $3.6 billion had been given for oil financing as part of its regular Pakistani operations.
After excluding the $3.6 billion oil financing, the amount committed at the Geneva conference will fall to $6.1 billion.
The sources said the net additional financing for the flood-related activities by the IDB would be hardly $600 million.
In addition to that, the sum of $2.7 billion already committed funds by the international lenders were repurposed towards flood activities.
The $2 billion that the World Bank announced at the Geneva conference was also not fresh funds.
The sources said the Saudi Fund for Development also did not give any additional funds.
Some in the finance ministry believed that at least $1 billion of the Geneva pledges could be materialised before June -- an assessment that might be inaccurate.
The sources said it would also be difficult to receive $450 million to $700 million of the Geneva pledges before June.
The economic affairs ministry’s debt bulletin showed that so far $126 million had been disbursed by the World Bank for two flood-related projects.
The sources said that another $70 million could be disbursed by the Asian Development Bank for a flood rehabilitation project.
Overall, Pakistan received $7.3 billion in foreign loans in eight months – an amount that is not sufficient to keep it afloat till June this year.
The government has also cited lack of availability of funds because of the IMF fiscal ceilings as one of the reasons for not holding provincial assembly elections.
However, the IMF has ruled out that it ever imposed any restriction on Pakistan that could undermine its constitutional obligations.
The IMF has said it set the aggregate general budget targets and within these there was fiscal space available to reprioritise the spending or raise additional revenues to ensure that the constitutional activities could take place.
Using the IMF’s pretext for gaining political objectives may further deepen the mistrust between Pakistan and rest of the financial world, according to the sources.
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