All requirements met for IMF bailout: finance official

State minister says size of loan package will be north of $6b

KARACHI:

Pakistan is looking to clinch a staff-level agreement on an International Monetary Fund (IMF) bailout of more than $6 billion this month after addressing all of the lender’s requirements in its annual budget, its junior finance minister told Reuters.

The government has set challenging revenue targets in its annual budget to help it win approval from the IMF for a loan to stave off another economic meltdown, even as domestic anger rises at new taxation measures.

“We hope to culminate this (IMF) process in the next three to four weeks,” Minister of State for Finance, Revenue and Power Ali Pervaiz Malik said on Wednesday, with the aim of thrashing out a staff-level agreement before the IMF board recess.

“I think it will be north of $6 billion,” he said of the size of the package, though he added at this point the IMF’s validation was the primary focus.

The IMF did not respond immediately to a request for comment.

Pakistan has set a tax revenue target of Rs13 trillion ($47 billion) for the fiscal year that began on July 1, a near 40% jump from the prior year, and a sharp drop in its fiscal deficit to 5.9% of gross domestic product (GDP) from 7.4% in the previous year.

Malik said the point of pushing out a tough and unpopular budget was to use it as a stepping stone for an IMF programme, adding the lender was satisfied with the revenue measures taken, based on their talks.

“There are no major issues left to address, now that all major prior actions have been met, the budget being one of them,” he said.

While the budget may win approval from the IMF, it could fuel public anger, according to analysts.

“Obviously, they (budget reforms) are burdensome for the local economy but the IMF programme is all about stabilisation,” Malik said.

Sakib Sherani, an economist who heads private firm Macro Economic Insights, said a quick deal with the IMF was needed to avoid pressure on Pakistan’s foreign exchange reserves and the currency given the country’s maturing debt repayments and the effects of unwinding of capital and import controls that were applied earlier.

“If it takes longer, then the central bank may be forced to temporarily reinstate import and capital controls,” he said. “There will be a period of uncertainty, and one casualty is likely to be the rally in equities.”

Pakistan’s benchmark share index closed up 0.9% on Wednesday, reaching a record intra-day high of 80,405 points before closing at 80,332 points.

The index has rallied roughly 10% since the budget was presented on June 12, helped by continued optimism about getting an IMF bailout package to bolster the struggling economy.

Pakistan’s sovereign dollar bonds rallied, with the 2036 maturity gaining the most, rising by 1.19 cents to trade at 74.79 cents on the dollar by 1132 GMT.