Amid consideration of constitutional amendments with the assent of the Parliament, the International Monetary Fund (IMF) confirmed placing Pakistan on its executive board agenda on September 25 meeting for holding Article IV consultation and requesting an Extended Fund Facility (EFF) of $7 billion bailout package.
Pakistan and the IMF had struck a Staff Level Agreement (SLA) on July 12, 2024, for 37 months EFF facility of $7 billion. The IMF staff put in place a caveat that “this agreement is subject to approval by the IMF’s Executive Board and timely confirmation on necessary financing assurances from Pakistan’s development and bilateral partners”.
This crystal-clear illustration from the IMF took almost two and a half months to secure confirmation of external financing assurances from all creditors. Now, the IMF’s Board was expected to approve the next bailout package of $7 billion on September 25.
External Financing Needs: Pakistan’s external financing needs stood at $26.6 billion for the current fiscal year with repayments of external debt and obligations hovering around $22 billion. In comparison, the remaining $4.6 billion was related to financing the current account deficit (CAD) for the current fiscal year. This CAD demonstrates the policy of import curtailment through non-tariff barriers will continue to persist coupled with constraints that the economy is poised to grow in the range bracket of 2.5 to 3.5 percent. Under the IMF program, Islamabad will have to commit to opening up the economy and there will be no tariff restriction to curtail imports. But the demand side will remain compressed so there will be no massive upsurge for imports.
Now on external debt repayments of $22 billion, Pakistan first of all made request to its bilateral partners to extend rollover of $12 billion deposits lying with the State Bank of Pakistan for three three-year period which was rejected by all three major partners. The deposits of $12 billion lying in the SBP were basically secured from Kingdom of Saudi Arabia of $5 billion, China $4 billion and the remaining $3 billion from UAE. These three countries agreed to grant of rollover for one year.
Now the IMF also assessed that Pakistan’s financing gap ranged around $2 to $2.5 billion which remained major stumbling bloc in the way of presenting Pakistan’s case before the IMF’s Executive Board. Now all major requirements have been fulfilled and Pakistan dispatched a Letter of Intent (LoI) dully signed by Minister for Finance Mohammad Aurangzeb and Governor SBP Jameel Ahmed with the commitment that all envisaged targets and conditions under $7 billion EFF program for 37 months would be fulfilled.
Out of $2 billion additional external financing, Pakistan was expecting $1.2 billion from Kingdom of Saudi Arabia in shape of a Saudi Oil Facility (SOF) on deferred payment on the basis of $100 million per month facility on a monthly basis for next 12 months. Pakistan has also been negotiating with Islamic Development Bank (IsDB) ITFC facility of $400 million. The remaining financing was requested to Standard Chartered Bank (SCB) to the tune of $800 million to $1 billion through different tools, however, the commercial banks offered double digit markup on the commercial loans.
With all these measures paved the way for fulfilment of external financing assurances and now the IMF’s Executive Board was expected to grant its assent on the upcoming bailout package of $7 billion.
