KARACHI- To receive the next installment of IMF funding, Pakistan must guarantee that its balance of payments deficit is fully financed for the fiscal year ending in June, the resident representative of the fund said on Monday.
The funding is essential for the South Asian economy, which is struggling with its balance of payments and has seen its central bank’s foreign exchange reserves fall to levels that can only just barely cover four weeks’ worth of imports. Since early last month, the International Monetary Fund has been in negotiations with Islamabad to complete its ninth review. If the board approves, $1.1 billion of the $6.5 billion bailout agreed upon in 2019 will be released. At the end of this fiscal year, which ends on June 30, that bailout expires.
Ishaq Dar, the minister of finance, had stated last week that the assurance of external financing was not a requirement of the IMF for approval of the funding. “All IMF programme reviews require firm and credible assurances that there is sufficient financing to ensure that the borrowing member’s balance of payments is fully financed… over the remainder of the programme,” Esther Perez Ruiz, a spokeswoman for the fund, in an email. Pakistan is no different. According to officials, Pakistan has almost finished all other required steps, with the exception of the requirement for external financing. Last week, Dar stated that Pakistan would require $5 billion in outside funding to close its funding gap for the current fiscal year, which ends on June 30, adding that the IMF thought it should be $7 billion.
The only nation to date to commit a refinancing of $2 billion is longtime ally China. Out of that, Pakistan’s central bank has already received credit for $1.2 billion. Dar expressed optimism that as Pakistan signs the IMF agreement this week, more outside funding will follow. There is no timetable provided by the IMF. Pakistan’s foreign debt increased on Monday, roughly in line with other more risky, smaller emerging markets. According to Tradeweb data, Pakistan’s 2026 bond increased by as much as 1.2 cents to trade at just over 44 cents in the dollar. On Pakistan’s near future, some analysts were optimistic.
We believe the restart of Pakistan’s EFF (Extended Fund Facility) program is imminent after crossing off a lengthy “to-do” list in an effort to get the IMF program back on track, according to Deutsche Bank’s Anna Friedemann in London. She did, however, add that a restructuring was “almost certain” to occur at some point. In interbank trading on Monday, the rupee appreciated as well, continuing a recovery from its 6% decline against the dollar on Thursday. The rupee has been losing value due to delays in the funding agreement with the IMF. The IMF reports that “the exchange rate has moved substantially in recent days, which has narrowed the informal FX market premium bringing the rates closer together in a manner similar to that seen around January 26.” According to Luiz’s email.
“This should happen as a result of the foreign exchange rate market operating without restrictions.” Foreign exchange firms removed a cap on the currency on January 25 because they claimed it created “artificial” distortions in an economy that was in dire need of IMF assistance. Ruiz noted that Pakistan has suffered greatly as a result of the disparity in foreign exchange rates between the open and informal markets, which has led to a shortage of foreign currency and an increase in imports of goods. She added that in order to deal with the debt in the energy sector, Pakistani authorities also intended to impose a constant power surcharge on consumers. “Due to a significant under-collection from delays in regular tariff adjustments, the power sector CD [circular debt] flow for FY23 is expected to largely exceed expectations under the EFF-supported program by a significant margin.
