SBP expects IMF revival, $10b reserves by June

Pakistan is on the brink of a financial breakthrough, as the State Bank of Pakistan (SBP) anticipates the International Monetary Fund (IMF) loan programme worth $6.5 billion will soon be revived. The bank has projected that the foreign exchange reserves will be above $10 billion by the end of June 2023, according to SBP Governor Jameel Ahmad.

Speaking at an analyst briefing on the latest monetary policy statement, Ahmad stated that the bank had revised down its projection for the current account deficit (CAD) to below $6 billion for the current fiscal year.

In January 2023, the bank had projected the deficit (CAD) at around $9 billion for the year, it was learnt.

Experts believe that the revival of the IMF programme will lead to the removal of all restrictions on imports.

Topline Research’ analyst Yousuf M Farooq said in a note after attending the briefing that Ahmad said discussions are ongoing with IMF and that the last hurdle was financing commitments (from friendly countries), which he expected to come in soon.

According to Ismail Iqbal Securities Head of Research Fahd Rauf, Ahmad believes that “inflows are conditioned on the IMF programme, and once the staff-level agreement (SLA) is finalised with the IMF, the SBP is hopeful that foreign exchange reserves will exceed $10 billion by June 2023.”

The country’s foreign exchange reserves currently stand at $4.24 billion.

Ahmad held the briefing after announcing that the bank had increased its key policy rate by 100 basis points to 21%. Experts believe that this policy rate is at an all-time high.

Now, Finance Minister Ishaq Dar is scheduled to visit the US from April 10 to 16 to attend the annual meetings of the IMF and the World Bank. He, along with a high official team, will talk to the IMF team for the revival of its loan programme.

Ahmad also stated that Pakistan is to repay foreign debt worth only $2.2 billion in three months, while the size of commercial loans stands at a meagre $100 million. Besides, the government remains hopeful that it will get foreign debt of another $2.3 billion rolled over until the end of June.

Ahmad’s briefing suggests that the government will manage with the critically low foreign exchange reserves, until the IMF programme is revived, and mitigate the risk of default on foreign debt repayment, going forward.

“Nonetheless, the overall balance of payments position continues to remain under stress, with foreign exchange reserves still at low levels,” according to SBP’s latest monetary policy statement. The statement emphasises that “the early conclusion of the 9th review under the IMF programme is critical to rebuild the FX reserve buffers.”

The statement says that economic activities have continued to slow down for multiple reasons, including the continuous monetary policy tightening itself. “Growth in FY23 will be significantly lower than the post-floods assessment of November 2022. Growth in tax revenues has remained below target, amidst a slowdown in economic activity, reduction in imports, and inadequate policy focus on expanding the tax net, while debt servicing has increased,” it said.

Published in The Express Tribune, April 5^th, 2023.

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