Govt banks on Saudi, Chinese largesse to plug $5 billion gap
Pakistan has assured the International Monetary Fund that despite initial delays, it still remained hopeful of securing the Chinese debt rescheduling and will receive oil from Saudi Arabia on deferred payments as part of its efforts to fill the $5 billion external funding gap.
The hopes are rooted in the assurances that the executive directors of those countries gave to the IMF board at the time of approval of the $7 billion bailout package.
The government also requested the IMF visiting delegation to review its condition on drastically amending the Pakistan Sovereign Wealth Fund law by end of December. The IMF remained non-committal on Wednesday on the request.
Pakistan has hired the services of Alvarez & Marsal Sovereign Advisory Services to plead its case before the IMF. The former central bank governor, Dr Reza Baqir, is a managing director with Alvarez and also attended the IMF meeting on Wednesday.
The sources said that the IMF took a briefing on the external financing commitments, which are necessary to fill the $5 billion funding gap from 2024 to 2027. Pakistan assured again that China's Exim Bank would rollover $3.4 billion project debt and Saudi Arabia will provide a $1.2 billion facility.
However, so far there are no significant developments on both the issues, although China has engaged the government. The executive directors of these countries had directly given assurances to the IMF board and Islamabad hoped that these transactions would materialize soon.
Out of a total $5 billion external financing gap for the 2024-27 periods, $2.5 billion is estimated for this fiscal year. At the time of the $7 billion package, Pakistan had anticipated raising $3.2 billion against the $2.5 billion in debt needs. This included a $1.2 billion Saudi oil facility.
Each month of delay in finalising the oil facility reduces the available funds by $100 million within the fiscal year. Pakistani authorities remain hopeful of persuading Riyadh to extend the facility.
Out of the $3.4 billion rescheduling request to China's Export-Import (Exim) Bank, roughly $750 million is due in the next 11 months year; the rescheduling is factored into the external financing calculations. A $2.7 billion Chinese project debt extended by Exim Bank will be maturing from October 2025 to September 2027.
Finance Minister Muhammad Aurangzeb went on a foreign trip for three days to attend the COP 29 meetings. A Finance Ministry handout stated that Aurangzeb would join the IMF discussions on the last day Friday.
PSWF
The Pakistani authorities and Alvarez & Marsel give briefing to the IMF about the required amendments in the Pakistan Sovereign Wealth Fund Act. Under the IMF deal, Pakistan has given commitment to the IMF that it would amend the law, in line with IMF requirements, by the end of December.
Pakistan has now proposed that the IMF should not push for drastic legal changes in the law and should accept that the sovereign fund cannot be treated as a State-Owned Enterprise. The government offered that it stood ready to address issues related to best international practices for managing the Fund.
The IMF did not immediately respond to the proposal but it in the past raised serious transparency concerns in the management of the fund. The IMF is also of the view that Pakistan is a cash-starved country, which does not have money for setting up such ventures.
In September this year, the government conceded to the IMF demand to rewrite the Pakistan Sovereign Wealth Fund (PSWF) Act, aiming to end secrecy in its fiscal and governance affairs and ban the direct sale of assets to foreign nations.
The Pakistan Democratic Movement (PDM) government had enacted the PSWF Act to transfer shares of seven profitable entities in the first phase and then sell them overseas to raise money. These entities include the Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited, Mari Petroleum, National Bank of Pakistan, Pakistan Development Fund, Government Holdings (Private) Limited, and Neelum-Jhelum Hydropower Company.
As a major concession, Pakistan has already agreed to omit Section 50 from the PSWF Act, applying the State-Owned Enterprises (SOEs) Act 2023 to these seven companies. The existing law exempts state-owned enterprises majority-owned by the fund from the SOE Act.
Pakistan has also committed to amending all relevant sections of the law that deal with the objectives, businesses, governance, sources of revenue, withdrawal of funds, and public asset management of the wealth fund.
Currently, the fund is empowered to handle the sale and purchase of domestic and foreign equity securities, debt securities, derivatives, commodities, and other financial assets. It can also enter agreements as a private party or implementing agency in Public-Private Partnerships, and it can acquire, own, sell, or transfer any tangible and intangible, movable or immovable assets.
The existing law permits the sovereign fund to participate in the privatisation process to acquire ownership of state-owned enterprises or provide financial advisory services in the privatisation process. However, after the new amendments, all these rights will be terminated.
All these special rights will be foregone, if the IMF's drafted amendments are approved by parliament before the end of next month.