Headway in bailout talks hinges on financing assurances, says IMF

ISLAMABAD: The International Monetary Fund (IMF) tied “the next step with Pakistan” to assurances of financial assistance from bilateral and other sources for the release of a bailout tranche, supercritical for the liquidity-challenged country, whose deficient foreign exchange reserves needed an urgent shoring up, Geo News reported on Friday.

“Timely financial assistance from external partners will be critical to support the authorities’ policy efforts and ensure the successful completion of the review [with Pakistan],” said Julie Kozack, the IMF’s Director of Strategic Communications in a press briefing.

Pakistan and the IMF have been negotiating since early February on an agreement that would release $1.1 billion to the cash-strapped country. The funds are part of a $6.5 billion bailout package the IMF approved in 2019 — vital to Pakistan to avert defaulting on external payment obligations.

The deal will also unlock other bilateral and multilateral financing avenues for Pakistan to shore up its foreign exchange reserves, which have fallen to four weeks’ worth of import cover.

The IMF wants Pakistan to get the assurance of up to $7 billion to fund this fiscal year’s balance of payments gap. Finance Minister Ishaq Dar has been saying it should be around $5 billion.

“Ensuring that there is sufficient financing to support the authorities is the paramount priority. A Staff Level Agreement (SLA) will follow once the few remaining points are closed,” she said, adding financing assurances were a standard feature of all IMF programmes.

“We do need to ensure that we have those financing assurances in place in order for us to be able to take the next step with Pakistan,” she added.When asked about the status of talks with Pakistan, Kozack said discussions were ongoing between IMF staff and the Pakistani authorities toward an SLA on policies to complete the ninth review of Pakistan’s extended Fund Facility (EFF).

“The authorities are committed to implementing the necessary reforms. They’ve started to implement decisive actions to stabilise the economy and restore confidence. While providing space to accommodate the needs related to the floods, including through an increase in social assistance through the Benazir Income Support Programme, which is aimed at the most vulnerable,” she added.

The IMF spokesperson also said Pakistan’s economy faces multiple challenges including slowing growth, high inflation and large financing needs. “And of course, this is all coming on the back of devastating floods,” she said.