Ishaq Dar, the federal minister of finance and revenue, announced on Thursday that Pakistan and the International Monetary Fund (IMF) would reach a staff-level agreement the following week, just as the negotiations were about to come to an end.
The minister made his remarks as the rupee fell to a record low against the dollar of 285.09, and analysts blamed the faltering IMF agreement for the economy’s decline. The Pakistani government has been in talks with the IMF about policy framework issues since early February, and they hope to sign the SLA that will open the door for additional funding from other bilateral and multilateral lenders.
The lender will provide the cash-strapped country with a lifeline once the deal is signed by disbursing a tranche of more than $1 billion from the $6.5 billion bailout deal agreed to in 2019. In order to close the fiscal deficit, the coalition government has already implemented a number of policies, including a market-based exchange rate, higher fuel and electricity prices, the removal of subsidies, and increased taxation. The finance minister stated in a series of tweets that “our negotiations with the IMF are about to conclude and we expect to sign Staff Level Agreement with the IMF by next week” despite the dire situation.
The finance minister — who took charge in September last year after Miftah Ismail was removed — also believes that the economy is headed in the right direction and blamed miscreants for spreading rumours about Pakistan’s possible default.
“All economic indicators are slowly moving in the right direction […] anti-Pakistan elements are spreading malicious rumors that Pakistan may default. This is not only completely false but also belie the facts,” FinMin Dar said.
The finance minister said that the tate Bank of Pakistan (SBP)-held foreign exchange reserves have been increasing over time and are in a better place compared to four weeks back.
“SBP forex reserves have been increasing and are almost US$1 billion higher than four weeks ago despite making all external […] due payments on time. Foreign commercial banks have started extending facilities to Pakistan,” he added.
It should be noted that foreign exchange reserves held by the central bank stand at $3,258.5 million as of the week ended February 17, which will provide an import cover of around three weeks.
But contrary to Dar’s repeated claims about Pakistan’s situation moving towards betterment, analysts have voiced their concerns and believe that the country might not be able to secure enough payments to pay its debts on time.
“In the current extremely fragile balance of payments situation, disbursements may not be secured in time to avoid a default,” Moody’s analysts led by Grace Lim said in a statement on Tuesday, when the firm cut Pakistan’s credit rating to Caa3 — the lowest in three decades.
Meanwhile, London-based head of emerging-market sovereign debt at abrdn plc, Edwin Gutierrez said: “There is definitely a higher risk for a default as negotiations with the Fund keep getting drawn out longer than expected while reserves continue to dwindle to precarious levels.”
