IMF would not want the PDM govt to take its dollars and spend the money to win the elections

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IMF would not want the PDM govt to take its dollars and spend the money to win the elections​

New IMF hurdle​

Editorial
May 6, 2023

SINCE February when ‘formal’ talks resumed between Pakistan and the IMF for the completion of the ninth review of the lender’s stalled $6.5bn funding programme, it has been a ‘one step forward, two steps back’ situation for the coalition government. Every time the elusive deal seems within reach, a new hurdle crops up.

Now the IMF says it is preparing to discuss Pakistan’s budget plans for the coming financial year “as part of a process to unlock a crucial financing injection”.

This is being seen as a fresh obstacle to the release of the pending bailout funds amounting to $2.6bn. Thus, many are assuming that the programme will remain in limbo at least until the next budget is passed.

The new condition isn’t surprising, considering that Pakistan must hold general elections in October and PML-N ministers are already appearing on TV to assure inflation-stricken party voters of a major ‘relief’. The lender would not want the government to take its dollars and spend the money to win the elections. We know how all fiscal discretion is abandoned in the attempt to win votes.

The IMF deal is crucial for tackling our severe balance-of-payments crisis, and avoiding default and potentially difficult debt restructuring. Without a staff-level agreement for the held-up $1.1bn tranche since November, foreign exchange reserves have declined to $4.5bn — just enough for a month of controlled imports.

According to Fitch Ratings, the country faces a total of $3.7bn of debt payments in the next two months till the end of June. About $700m in maturities are due in May and $3bn in June.

Fitch expects $2.4bn of the deposits and loans from China to be rolled over, reducing some pressure on the reserves. But it will be folly to expect China to lessen the burden so easily.

Pakistan has already taken all the agreed steps to unlock the funding, with external financing remaining the last hurdle. It is required to give an assurance that its “balance-of-payments deficit is fully financed for the fiscal year ending” to secure the next tranche.

Despite assistance from the UAE, Saudi Arabia and China, the financing gap of up to $2bn remains. Further, the IMF seems averse to combining the remaining two reviews with the ninth review and release the entire amount at one go to keep the fiscal authorities in check. This is in spite of the fact that the present facility will end in June.

The new conditions and the refusal to combine the reviews reflect the widening trust gap, which is not surprising considering the multiple deviations from the programme in the last four years. Pakistan will need another IMF programme once this one ends. For that, Islamabad needs to bridge the trust gap with the lender.

New IMF hurdle

Every time the elusive IMF deal seems within reach, a new hurdle crops up.

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IMF insists on ‘pledges for financing’​

Reuters
May 6, 2023

ISLAMABAD: The International Monetary Fund is working with Pakistan to conclude a ninth review of a bailout programme, its mission chief said on Friday of the funding critical for the cash-strapped nation to avert an economic collapse.

Pakistan and the IMF have been discussing fiscal policy measures in the review since February, aiming to resume stalled funding of $1.1 billion due in November 2022 under a loan programme agreed in 2019.

The measures have fuelled the highest-ever inflation, posted at 36.4 per cent in April.

The IMF funding is crucial for Pakistan to avert a default on its external payment obligations during a balance of payment crisis, in which foreign exchange reserves have shrunk to just four weeks of controlled imports.

“The IMF continues to work with the Pakistani authorities to bring the ninth review to a conclusion once the necessary financing is in place and the agreement is finalised,” mission chief Nathan Porter said in a statement to Reuters.

“The IMF supports the authorities in the implementation of policies in the period ahead.” This included technical work to prepare the budget for 2023-24, set to be passed by the National Assembly before end-June, he added.

As part of the conditions, Pakistan has given an assurance that its balance of payments gap this fiscal year is fully funded.

Pakistan has announced pledges worth $3bn in financing support from Saudi Arabia and UAE, but the funds have yet to come through. Longtime ally China has rolled over and refinanced its loans.

Islamabad and the IMF have had differences over the gap. It was not clear if the Saudi, UAE and Chinese financing would be sufficient, or if more external support would be needed. It was also not immediately clear why the lender wanted to work on the technical preparation of the budget, which is not covered by the programme.

The step could be linked to a possible new IMF lending plan, said Yousuf Nazar, an economist and former head of equities and investments at Citigroup.

“I think it is unavoidable that they would like to ensure the government will meet its commitments particularly when it is in no position to repay the debt, which will inevitably need a new programme,” he told Reuters.