Pakistan says Saudi Arabia, Dubai won’t lend without IMF deal

KARACHI: Pakistan’s finance minister said countries that have typically been generous in lending to the crisis-hit nation are proceeding more cautiously now.

“We went to Saudi Arabia, Dubai and spoken to other countries -- they are ready to give money, but all of them say we need to go to the IMF first,” said the minister, Miftah Ismail, on May 28.

That’s a pivot from the past. When Pakistan went through a similar economic crisis in 2018, the nation was able to secure backing from China, Saudi Arabia and the UAE before going to the International Monetary Fund. Now, China has yet to follow through with a pledge to re-issue loans to Pakistan repaid in late March.

Pakistan’s economic risk score is currently at the lowest level since Bloomberg started compiling data in 2009. The nation’s foreign exchange reserves have halved in less than a year and the rupee has dropped by almost 8 percent in the past month. That makes it the worst performer in Asia, according to data from 13 nations compiled by Bloomberg.

China’s Asian Infrastructure Investment Bank, which was created to compete with other global funders, has also aligned itself with the lenders, telling Pakistan that if the World Bank gives money, then so will it, according to Ismail.

The government is unable to secure funding from the global bond market and commercial banks, making it even more important to secure an agreement with the IMF, Ismail said. Pakistan’s dollar bonds, which reached a record low this month, gained on Friday after the government raised fuel prices, a key benchmark for the IMF to resume its loan program. Pakistan is seeking to secure a staff-level agreement with the fund in June.

“All roads lead to the IMF,” Ismail said to a virtual conference. “Saudi Arabia and other countries are all ready to give money, but all of them say we need to go to the IMF first.”

Former Prime Minister Imran Khan reduced and froze fuel prices, stalling the $6 billion bailout program. His successor Shehbaz Sharif, who took office in April, banned luxury imports and the central bank raised borrowing costs more than expected this month to deal with all-time high imports.

Pakistan needs about $36 billion to $37 billion in financing for the fiscal year starting June, said Ismail. An IMF deal would help secure funds from other sources such as the World Bank and friendly nations including China.

Ismail ruled out raising funds from the global bond market and foreign commercial banks that have given short-term loans in the past. The decision was made after the nation is said to have picked banks JPMorgan Chase & Co., Citigroup Inc., Standard Chartered Plc and Credit Suisse Group AG to manage any bond sale.

The financing will help Pakistan increase its foreign exchange reserves to about $15 billion next fiscal year from about $10 billion. Pakistan faces $3.2 billion in dollar debt due this year, the highest amount in the next decade, according to data compiled by Bloomberg.