IMF flags external financing hurdle for bailout deal

Mehtab Haider
Saturday, Mar 25, 2023

By News Report

ISLAMABAD: The International Monetary Fund (IMF) has made it clear that the staff-level agreement with Pakistan will be inked only after the multilateral and bilateral partners materialized sufficient external financing needs.

Top official sources confirmed to The News on Friday that the agreement signing had been delayed mainly because of the trust deficit of the IMF, lack of capacity to pursue the Fund-sponsored reform programmes and the Fund’s dilly-delaying tactics due to which both sides had so far failed to evolve a consensus on the Memorandum of Economic and Financial Policies (MEFP).

Efforts by the Pakistani authorities to get approval from the IMF’s Executive Board on April 10 for the completion of Ninth Review and release of $1.2 billion tranche are going to face a major blow and now it seems almost impossible within the desired time-frame.

In a press briefing in Washington, DC, when the IMF Director Communication Julie Kozack was asked what were the major outstanding issues and what more the Fund would like to see from Pakistan’s creditors, she said discussions were ongoing between the IMF and Pakistani authorities for a staff level agreement on policies to complete the Ninth Review and the authorities were committed to implementing the necessary reforms. “They’ve started implementing decisive actions to stabilize the economy and restore confidence while providing space to accommodate the needs related to the floods, including an increase in social assistance through the Benazir Income Support Programme, which is aimed at the most vulnerable,” she added.

“Timely financial assistance from external partners will be critical to support the authorities’ policy efforts and ensure successful completion of the review,” she said.

Kozack said at this point ensuring that there was sufficient financing to support the authorities was of the paramount priority.

“A Staff Level Agreement will follow once the few remaining points are closed. I can also say that financing assurances, right, what we’re looking for here are a standard feature of all IMF programmes,” she said and added, “Aside from the support provided by the IMF, Pakistan’s EFF-supported programme receives financing from other multilateral institutions, including the World Bank, the ADB, and the AIIB and bilateral partners, notably China, Saudi Arabia, and the UAE. So, 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.”

Meanwhile, talking to this reporter, former Citigroup head of Emerging Market Investment and economist Yousuf Nazar said the IMF insisted on receiving assurances of financial assistance from principally China, Saudi Arabia, and the UAE.

“While China has recently been helpful, its new lending is not enough for Pakistan’s external funding gap of around $10 billion. The government has so far been unable to persuade Saudi Arabia and other Gulf countries to meet the shortfall. More recently, the government’s ill-advised and ill-timed decision to revise the fuel pricing scheme has further complicated the matter. It now appears that we may not be able to reach a staff-level agreement anytime soon and Pakistan may eventually default,” he feared.

Talking to this reporter, Dr Khaqan Najeeb, former adviser Ministry of Finance, said the delay in the completion of the 9th Review had hurt in terms of erosion of foreign reserves and severity of external sector challenge. He said many industrial sectors had slowed, as raw material import was constrained due to the dollar liquidity crunch. He felt Pakistan and IMF had a trust deficit on the set of reforms agreed to in the last few reviews.

Dr Najeeb said now a credible plan of external financing appeared to remain a bone of contention for the completion of the review.

Meanwhile, the IMF’s resident representative in Pakistan Esther Perez Ruiz said the loan agreement will be signed once a few remaining points, including the proposed fuel pricing scheme, were settled.

The fuel pricing scheme is planning a difference of around Rs100 (35 US cents) a litre between the prices to be paid by the rich and poor, according to the petroleum ministry.

Talking to an international media outlet on Thursday, Petroleum Minister Musadik Malik said the pricing plan would not be a subsidy but a relief programme aimed at helping the poor. However, in a message to the UK-based international media outlet, Ruiz said the Government of Pakistan had not consulted them on the fuel pricing scheme. She said the Fund would ask the government for more details about the fuel proposal, including how it would be implemented and what protection would be put in place to prevent abuse.

The resident representative in Pakistan confirmed a media report that a staff-level agreement would be signed once a few remaining points, including the fuel scheme, were settled.