IMF distances itself from $600m loan
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The International Monetary Fund (IMF) on Thursday distanced itself from Pakistan's decision to arrange the most expensive foreign commercial loan of $600 million and said that any such move was not linked to its requirement for securing approval for a $7 billion bailout package.
"To our knowledge no commercial financing at 11% has been undertaken and if there is such it does not necessarily for the programme financing assurances," said a spokeswoman for the IMF in Islamabad.
The IMF statement came days after Finance Minister Muhammad Aurangzeb told the National Assembly Standing Committee on Finance in an in-camera meeting that the government had arranged $600 million in financing at 11% interest for the IMF programme purposes.
The finance minister also told the committee that the government may not draw down the loan. He was responding to a question asked by a legislator.
The Express Tribune reported on September 14 that the government agreed to take a $600 million commercial loan from Standard Chartered Bank to bridge its financing gap, which was necessary before getting a date for the IMF board meeting.
The IMF had identified external financing gap of over $2 billion, prompting Pakistan to seek financing commitments from European and Gulf banks in addition to tapping some extra project financing.
The IMF on Wednesday approved the $7 billion loan package and also authorised the release of first tranche of about $1 billion.
Government sources said that Pakistan had shared details of Standard Chartered Bank's offer of $600 million loan and its interest cost with the IMF. Pakistani authorities also informed the IMF about other available financing options to bridge the gap.
Officials said that the IMF was not willing to give a date for its board meeting before making sure that there were firm commitments to bridging the $2 billion external financing gap.
Standard Chartered Bank gave the firm commitment and shared the term sheet, they added. Subsequently, the Pakistani authorities took the IMF into confidence about the offer and interest rate.
Standard Chartered Bank's offer was for two loans totaling $600 million. Of these, $300 million was for liquefied natural gas (LNG) supply and another $300 million was syndicate financing.
After the IMF's public statement against the Standard Chartered Bank loan, the chances for withdrawing the money have almost diminished. However, this raises question over whether the government should have entertained any such offer and shared it with the IMF.
The IMF, nonetheless, influenced Pakistan's decisions about the maturing loans extended by four bilateral creditors.
It gave the board meeting date only after the bilateral creditors agreed to roll over $12.7 billion worth of cash deposits. The IMF set the date of September 25 for considering Pakistan's case in the executive board meeting.
Pakistan needs $100 billion in four years to repay its maturing debt, Minister of State for Finance Ali Pervaiz Malik said last week.
For this fiscal year alone, the country needs $26 billion to repay the debt and remain afloat. This includes $16 billion that the government will not pay back to the bilateral creditors by securing rollovers. In an interview with the Voice of America, Finance Minister Muhammad Aurangzeb said on Thursday that the IMF was justified to inquire about the re-profiling and rollover of Chinese debt, which constituted the largest component in the external debt.
The finance minister also said that Pakistan had in the past signed structural benchmarks for state-owned enterprises' reforms, privatisation, energy and taxation reforms with the IMF. But those never went through, which caused credibility and trust deficit between the two sides, added Aurangzeb.
The Asian Development Bank warned on Wednesday that rising political and institutional tensions may make it difficult to implement reforms that Pakistan committed to deliver to the IMF. It said that those reforms were crucial to make sure that external lenders kept on lending to Pakistan.
Power sector's fiscal viability, privatisation of loss-making entities and enhancing tax revenues are part of core conditions of the IMF programme.
Unlike in the past, when provincial budgets were out of the purview of the IMF, the new programme has been extended to the provinces and their revenues. There are nearly one-dozen IMF conditions that directly impact the provinces under the loan programme.