Pakistan still half way to clinch staff-level IMF deal

Global lender seeks confirmation for $6b loans that Pakistan urgently needs to bridge the external financing gap

The International Monetary Fund (IMF) said on Saturday that it was still waiting for “necessary financing assurances” for a successful conclusion of the review talks – taming expectations for a deal until Pakistan arranges the remaining $3 billion.

In an early morning statement, Nathan Porter, IMF Mission Chief to Pakistan, said that the global lender “looks forward to obtaining the necessary financing assurances as soon as possible to pave the way for the successful completion of the 9th EFF (Extended Fund Facility) review”.

Highly placed sources told The Express Tribune that the IMF was seeking confirmation for the total $6 billion loans that Pakistan urgently needs to bridge the external financing gap. They said that the government was trying hard to secure commitments for the rest of the $3 billion by next week.

Read IMF talks end without staff level agreement

Four days ago, Finance Minister Ishaq Dar had requested the Fund to show some flexibility and strike a staff-level deal, which according to him can pave the way for arranging the rest of the loans. The IMF had identified the $6 billion hole in Pakistan’s external financing requirement, which it asked to be bridged before the matter is taken to the IMF’s board for approval of the next loan tranche.

Pakistan still might take some time to arrange the rest of the loans. The government has mentioned loans from foreign commercial banks as one of the sources to bridge the gap.

However, the Finance Ministry officials said that it will take four to six weeks for negotiations and then the disbursement of the foreign commercial loans. They added if these foreign commercial banks just give an assurance to the IMF, it will be sufficient to strike a deal.

Foreign banks are reluctant to extend any fresh financing due to the junk credit rating of Pakistan.

Also read MEFP implementation brings Pakistan, IMF close

The government had also placed bets on $450 million project proceeds from the Geneva pledges and expected to receive over half a billion dollars from the outsourcing of the three international airports –the two avenues that Pakistan may not tap immediately.

Dar on Friday announced that the United Arab Emirates (UAE) had given assurance to the IMF for a $1 billion loan to Islamabad. Saudi Arabia had already given assurances for a $2 billion loan, according to the Minister of State for Finance Dr. Aisha Pasha.

A day earlier, the finance minister’s tweet suddenly raised hopes that the major obstacle to the completion of the 9th review has been crossed and the staff-level agreement will be signed soon, but Porter’s statement has tamed those expectations.

Porter welcomed “the recent announcement of important financial support to Pakistan from key bilateral partners”, implicitly confirming the UAE and Saudi Arabian commitments. But these commitments are short of the requirements of Pakistan.

IMF Mission Chief to Pakistan further stated that the global lender was supporting Pakistan’s efforts to arrange the loans.

In order to bridge the financing gap, Dar on Friday requested the World Bank and the Asian Infrastructure Investment Bank to provide $900 million in loans but Pakistan has not met all the conditions set by the World Bank. The Washington-based bank was also looking towards the IMF before approving any new budget support loan.

It appeared that the IMF still has certain issues with regard to Pakistan’s economic policies.

“During the meetings between the Pakistani delegation and IMF staff and management, there was agreement on the need to maintain strong policies and secure sufficient financing to support the authorities’ implementation efforts”, stated the mission chief.

Read more All IMF conditions met, no excuse to not sanction loan: PM Shehbaz

The IMF had demanded to increase the interest rates by at least 6% when the key policy rate was 17%. The central bank has already jacked up the rate to 21% during the last two months but it is still short of the IMF’s requirement of having inflation-adjusted positive interest rates.

For the next fiscal year 2023-24, the IMF has projected 21.9% average headline inflation rate and the current real policy rate is still negative.

The sources said that the IMF had also concerns about inconsistent economic policies. The trust deficit gulf had widened further after Prime Minister Shehbaz Sharif announced Rs50 per liter petrol subsidy for motorcyclists and small car owners of up to 800 cc.