Finance Minister Ishaq Dar on Wednesday hinted that the International Monetary Fund (IMF) programme may expire on June 30 without revival due to “restricted time” and apologised to businessmen for the hardships they were facing because of an extremely challenging economic situation.
“Our efforts are aimed at completing the second IMF programme in the country’s history, although time has been restricted and the programme is ending on June 30,” Dar said while speaking to a delegation of Rawalpindi, Islamabad and Sarhad Chambers of Commerce and Industry.
Since 1958, Pakistan has signed 22 IMF programmes but it failed to complete all barring the 2013-16 programme, thanks to nearly 18 waivers from the IMF.
The failure to successfully complete the ongoing programme will further widen trust deficit between Pakistan and the financial world. Pakistan had signed the current 36-month $6 billion Extended Fund Facility in July 2019. The IMF, on request of the then finance minister, Miftah Ismail, extended the programme by nine months to June 30, 2023 and its size was also increased to $6.5 billion.
Over the past almost four years, the programme has been derailed at least four times, including on two occasions during the tenure of the current coalition government.
It has now been proven that it was a wrong decision on the part of Miftah Ismail to get extension from the IMF instead of negotiating a new programme.
The coalition government has failed in timely completing the programme reviews and $2.6 billion still remains undisbursed because of disagreement on the ninth review, which also delayed the completion of 10th and 11th reviews.
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The government has not yet come up with a credible alternative plan, which is creating panic in markets as the rupee is trading in the range of Rs308 to Rs313 to a dollar in the open market.
However, Dar asserted that the country was not on the verge of a financial crisis and “will absolutely not default”. He stated that the country had completed all technical formalities of the ninth review.
“It is unfortunate that the beginning of this review has been delayed by three months, but we have completed all prior actions,” he said. The IMF said earlier this month that there was a significant financing gap that Pakistan was required to bridge before reaching a staff-level agreement.
But the finance minister has been repeatedly saying that Pakistan has arranged the financing and there is also less-than-projected current account deficit, which has further reduced the funding requirement.
Dar boasted that he had given a surprise to those pundits who were predicting Pakistan’s default and the government achieved a current account surplus for two consecutive months. He commended his economic team for its “efforts and hard work”, pointing out that the country had recorded a current account surplus in March and April at $750 million and $18 million respectively.
However, the markets and businessmen have been openly criticising the government’s approach to suffocate the economy and the industry by curbing imports, which is only delaying the looming default. The finance minister stressed that there was a sincere effort on the part of him and his team to complete the IMF’s ongoing programme but the delay was “unfortunate”. The review should have been completed earlier, he added.
He “apologised” to the business community for the hardships and inconvenience they were facing due to the present economic situation. But he clarified that the current economic team was not responsible for those hardships.
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The minister said that the country had repaid $5.5 billion of commercial loans. Of those, China rolled over $2 billion once it “understood” that Pakistan had completed its requirements for the release of funds by the IMF.
Regarding the remaining $3.5 billion in loans from non-Chinese commercial banks, Dar said “we are expecting that a substantial part of this will be returned once the staff-level agreement is reached because it is always renewed and they (banks) are always there to do business.”
So far, the United Arab Emirates, Saudi Arabia and China have given Pakistan assurances of assistance in March and April that will cover some of the funding deficit.
Owing to an estimated $25 billion external debt repayment, including the interest on loans, and the need to finance the current account deficit, the Ministry of Finance has advised the government to negotiate a new deal with the IMF, said the sources.
Published in The Express Tribune, May 25th, 2023.
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