IMF board okays $700m loan tranche

Disbursements to Pakistan will hit $1.9b after this amount

ISLAMABAD:

The Executive Board of the International Monetary Fund (IMF) on Thursday approved the first review of the bailout package for Pakistan, paving the way for the release of $700 million loan tranche ahead of the maturity of a $2 billion lending granted by a Gulf nation.

The immediate handing over of around $700 million brings the total disbursements under the Stand-By Arrangement with the IMF to $1.9 billion, the finance ministry said in a brief statement issued after the board meeting.

The board meeting was held nearly two months after Pakistan and the IMF reached a staff-level agreement.
Pakistan and the IMF had signed the nine-month programme in July 2023 for a $3 billion lending as a bridge financing ahead of an expected long-term deal.

The IMF has further cut Pakistan’s economic growth projection to 2% from July’s estimate of 2.5%.

Similarly, the IMF has cut the inflation rate forecast from 26% to nearly 24%, providing space for lowering the interest rates.

With the fresh approval of $700 million, Pakistan’s gross official foreign exchange reserves would reach a six-month high of $8.8 billion.

In recent weeks, the IMF, World Bank, Asian Development Bank (ADB), and Asian Infrastructure Investment Bank (AIIB) have helped Pakistan in sustaining its foreign reserves at their current levels.

A finance ministry official said a $2 billion loan of the UAE was maturing this month.

He added that $1 billion would mature on the coming Wednesday and another $1 billion on January 23.

He explained that on Tuesday, the finance ministry requested the UAE to further rollover the loan for a period of one year.

The response of the finance ministry spokesperson was awaited whether or not the UAE had accepted Pakistan’s request for the extension of the loan.

The UAE has placed $3 billion with the State Bank of Pakistan (SBP) to support the thin foreign exchange reserves, including $1 billion handed over after the approval of the IMF programme in July 2023.

The $2 billion had been given at an interest rate of 3% but the latest $1 billion was extended at 6.5% -- more than double of the old one, according to the finance ministry official.

The official elaborated that because of the extraordinary situation, Pakistan was not in a position to return the UAE loan and to ensure the sustainability of the ongoing economic reform process, the deposits of the Abu Dhabi Fund for Development remained crucial for the stability of the external account.

Apart from the UAE, Saudi Arabia has deposited $5 billion with the SBP.

China has also granted $4 billion deposits -- $2 billion of it maturing in March, according to finance ministry officials.

Pakistan’s bilateral creditors -- the UAE, China and Saudi Arabia -- have linked the renewals of their loans with the continuation of the engagement with the IMF and the approval of the first programme.

The IMF emphasised on continued fiscal consolidation to reduce public debt, while protecting development needs.
Pakistan remains “determined to achieve a primary surplus of at least 0.4% of GDP in FY24, underpinned by federal and provincial government spending restraint and improved revenue performance support, if necessary, by contingent measures,” a statement by the IMF read.

The country would also be required to “complete the return to a market-determined exchange rate”, it added.

“Pakistan would also pursue state-owned enterprise and governance reforms to attract investment and support job creation, while continuing to strengthen social assistance,” the statement continued.

Read Markets confident about approval of IMF tranche

The IMF has revised Pakistan’s foreign loan requirements to $25 billion for this fiscal year.

The Washington-based lender also lowered its inflation projection to 24% for this fiscal year -- cutting it from 25.9%.

The IMF remained successful in acquiring a date for the next general elections in Pakistan and in return ignored a few critical areas that in the past had become a cause for the failure of the last $6.5 billion bailout package.

It also brought the activities of the Special Investment Facilitation Council (SIFC) under its purview.

As against the old forecast of $32.9 billion, the IMF has now projected the foreign remittances at $29.4 billion -- a reduction of $3.5 billion, said finance ministry sources.

The exports have been marginally adjusted downwards to $30.6 billion, they added, while imports were projected at $58 billion.

The global lender has projected that the public and publicly guaranteed debt may increase to Rs81.8 trillion or equal to 76.8% of the GDP by the end of this fiscal year.

Due to unrealistic budgetary allocations, the IMF has now projected the size of Pakistan’s federal budget at Rs15.4 trillion -- Rs1.1 trillion higher than the one approved by the National Assembly in June this year.

In comparison with the Rs6.9 trillion budget deficit target, the IMF during the recent review talks has estimated it to peak to a record Rs8.2 trillion -- a slippages of Rs1.3 trillion.

According to the IMF projections, the current expenditures in this fiscal year may remain around Rs14.6 trillion -- higher by Rs1.24 trillion.

However, the development spending is projected at Rs782 billion -- Rs168 billion less than the allocation approved by the National Assembly in June.

As a result, the size of the budget, for the first time, would cross Rs15.4 trillion in the history of the country.

The global lender has kept the overall primary balance figure unchanged at 0.4% of the GDP or Rs401 billion -- which would require massive revenue efforts and a squeeze on subsidies.

Pakistan has committed with the IMF to further increase the petroleum levy collection to a record Rs918 billion in this fiscal year.

The government assured the IMF to further increase the petroleum levy annual target of Rs869 billion by another Rs50 billion.

The higher levy collection is being assured to compensate for the loss of revenue from other non-tax revenue sources.
The government charges Rs60 petroleum tax on every litre of petrol and diesel.

The Federal Board of Revenue’s (FBR) tax collection target remained unchanged at Rs9.415 trillion after the review talks. However, within the overall target of Rs9.415 trillion, the income tax collection target has been further increased by Rs346 billion -- aimed at compensating for the shortfall against the other three taxes.

The income tax collection’s revised target is Rs4.23 trillion, which is equal to 45% of the total collection.

The sales tax annual target has been slashed by Rs196 billion, custom duties by Rs117 billion and federal excise duty collection target by Rs34 billion.