External financing needs for Pakistan's 9th review unchanged: IMF

The International Monetary Fund (IMF) on Sunday said that the amount of external financing necessary to ensure that Pakistan stays current on its external payments remained unchanged throughout discussions for the 9th review of the programme.

Miss Esther Perez Ruiz, the Resident Representative, issued a statement about Pakistan’s external financing requirements a day after a story appeared in The Express Tribune that stated that the IMF has asked to arrange a total $8 billion to cover the requirements beyond June 30th period.

“There is no truth to reports that the IMF is asking Pakistan to raise $8 billion in fresh financing”, said Perez.

However, the internal papers of the Ministry of Finance show that the IMF has asked for an additional $2 billion.

These papers of the Finance Ministry showed that after a meeting between Pakistan and the IMF on April 12th, the IMF raised the issue of mobilising additional $2 billion.

In order to avoid any confusion, these official papers further stated that the additional $2 billion were demanded to be raised “over and above $6 billion”.

But the statement by the IMF’s representative suggests that these $2 billion demand was within the $6 billion financing gap identified for end June period.

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As part of the 9th programme review discussions, Pakistan and the IMF had identified $6 billion financing gap, according to the Finance Minister Ishaq Dar. So far, Pakistan has arranged $3 billion and the rest of the gap remains unfilled, delaying the revival of the stalled bailout package.

Saudi Arabia has promised to give $2 billion while the United Arab Emirates has committed $1 billion in fresh loans.

Esther stated on Sunday that “the IMF will continue to support Pakistan in the best possible way to secure sufficient financing by partners”. She added that the amount of financing necessary to support Pakistan’s implementation efforts and ensure that Pakistan stays current on external payments has remained unchanged throughout discussions under the ninth review.

According to the Pakistani authorities, the demand for the $2 billion were for the period beyond June 30th -the date when the IMF programme will expire.

In the context of the $2 billion additional financing, the official papers stated that Pakistan remained committed to the understanding already reached (for arranging $6 billion). The Ministry of Finance officials argued in these papers that due to contraction in the current account deficit, the IMF should instead reduce the demand from $6 billion to $5 billion.

These papers further stated that after booking only $3.8 billion current account deficit during first eight months, “there is in fact, a case for reducing Gross Financing Need from $6 billion to $5 billion.

The deficit further reduced to $3.4 billion after the country posted a surplus in March on back of severe import compression.

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The IMF had projected the current account deficit at $8 billion, which the Finance Ministry papers showed that “is unlikely to exceed $6 billion”.

The sources said that the IMF also has issues with restrictions imposed on the imports. But the Ministry of Finance officials were of the view that import compression was an economic outcome of the slowdown of the economy and the price elasticity of demand due to currency devaluation.

On last Monday, Dar informed the executive director of the IMF that the remaining $3 billion can only be arranged once the IMF announces staff-level agreement and the board approves the ninth review along with the $1.2 billion tranche.

Obtaining commitments of “significant additional financing” is essential before the IMF approves the release of pending bailout funds that are crucial for Pakistan to resolve an acute balance of payments crisis, the IMF spokeswoman said few days ago.

Dar also said on Thursday that Pakistan would not default on any foreign liability, with or without an IMF programme. He said Pakistan had fulfilled all the prior actions of the IMF and it was now up to the lender to sign the agreement.