Pakistan looking to hike IMF loan to up to $8bn

Mehtab Haider
Monday, Feb 26, 2024

ISLAMABAD: Pakistani authorities are exploring options for the augmentation of the upcoming IMF bailout package from $7.5 to $8 billion and one of the possibilities can be applying Climate Finance along with Extended Fund Facility (EFF).

If this arrangement is finalised, Pakistan could maximise the size of the programme from $6 billion under EFF to $7.5 or $8 billion keeping in view the specific quota available to Pakistan under Special Drawing Rights (SDRs).

Top official sources confirmed to The News on Sunday that Pakistan had discussed the possibility of augmentation of the size of the programme on the occasion of finalising the last Standby Arrangement (SBA) programme in June 2023 but the IMF did not entertain the request on the last occasion. It was argued by the IMF that it was a short-term programme so this possibility could be explored next time.

On pattern of Bangladesh, Pakistani authorities are now exploring the possibilities for seeking increased size of the upcoming programme, and climate finance would be explored to augment the Extended Fund Facility (EFF) programme.

There is one IMF instrument under the Resilience and Sustainability Facility (RSF) which provides affordable long-term financing to countries undertaking reforms to reduce risks to prospective balance of payments stability, including those related to climate change and pandemic preparedness.

This facility provides long-term financing to strengthen economic resilience and sustainability by (i) supporting policy reforms that reduce macro-critical risks associated with climate change and pandemic preparedness, and (ii) augmenting policy space and financial buffers to mitigate the risks arising from such longer-term structural challenges.

The eligible countries requesting access to the RSF need:

High-quality policy reforms addressing the long-term structural challenges of climate change or pandemic preparedness.

A concurrent IMF-supported programme with upper credit tranche quality policies (UCT programme)

It can be financing or non-financing and must be under one of the following arrangements: SBA, EFF, PLL, FCL, SCF, ECF, PCI or PSI. Emergency financing facilities (RFI, RCF), SMP, or SLL do not qualify. There should be at least 18 months remaining in the accompanying UCT programme.

Sustainable debt and adequate capacity to repay

Linked to reform progress, each measure is connected to one RSF disbursement. A reform measure can be a single policy action or a set of very closely related actions constituting a single reform. Where a measure includes multiple actions, all must be implemented to unlock the associated disbursement. See more on conditionality.

The reviews will take place concurrently with reviews under the UCT programme, once the expected date of completion of a reform measure and the associated disbursement availability date has passed.

Expected to coincide with the remaining duration of the accompanying UCT programme, minimum duration is 18 months. Expires when all amounts available are disbursed. Automatically ends upon the termination, cancellation, or expiry of the concurrent UCT programme. There will be a 20-year maturity and a 10½ -year grace period during which no principal is repaid.

Borrowers pay an affordable interest rate with a modest margin over the three-month SDR rate. A tiered interest structure differentiates financing terms across country groups, with low-income members benefiting from more concessional terms.

Pakistan has recently approved the Public Investment Management Assessment (PIMA) framework including Climate- PIMA under the guidelines of the IMF’s technical report. Pakistan is committed to the IMF to improve its public investment management (PIM) to support economic growth and service delivery and make public infrastructure more sustainable and resilient to climate change. This assessment applies the IMF’s Public Investment Management Assessment (PIMA) framework, including the Climate-PIMA module. It highlights some of the important efforts made in recent years to strengthen PIM and identifies the scope for further strengthening of key institutions. In a context where fiscal space is tight and climate action urgent, it recommends several targeted actions to move reforms forward.