Pakistan required to provide credible assurances to IMF for external financing
The International Monetary Fund (IMF) has stated that Pakistan needs to give firm and credible assurances of sufficient financing to ensure the balance of payments is fully financed over the rest of the program before the lender clears the funding stalled since late last year. IMF representative Esther Perez Ruiz mentioned that external financing is one of the last actions the lender wants Islamabad to complete before it releases $1.1 billion in disbursements under the $6.5 billion Extended Fund Facility agreed in 2019. The program ends in June.
Pakistan close to completing negotiations with IMF
Pakistan is close to concluding negotiations with the IMF related to the completion of the ninth review of a $7 billion loan program. The staff-level agreement with the global lender would be signed by next week, according to Finance Minister Ishaq Dar. The agreement with the IMF on the completion of the ninth review would lead to not only a disbursement of $1.2bn but also unlock inflows from friendly countries.
Pakistan’s completion of prior actions needed for staff-level agreement
Pakistan completed all prior actions needed for a staff-level agreement with the IMF, averting sovereign default and securing the disbursement. The government approved the continuation of up to Rs3.23 per unit special surcharge on electricity consumers to generate Rs335bn for debt servicing in the next fiscal year. The agreement with the IMF is aimed at curtailing the fiscal deficit ahead of the annual budget around June.
IMF representative stresses commitment to align official and informal forex market rates
The IMF representative stated that Pakistan is committed to aligning its official and informal foreign exchange market rates, days after the cash-strapped country’s currency plunged dramatically. The external financing requirement was not one of the IMF’s conditions for clearance of the funding, according to Finance Minister Ishaq Dar. However, he mentioned that Pakistan needed $5 billion external financing for the balance of payments deficit in the fiscal year ending June 30, while the IMF believed it should be $7 billion.
Power surcharge on consumers among measures planned by Pakistani authorities
A permanent power surcharge on consumers was also among measures planned by Pakistani authorities to address energy sector debt, according to the IMF representative. The country is in urgent need of external financing, and its current account deficit has widened due to higher oil prices, lower remittances, and weak exports. The IMF representative stressed that all IMF program reviews require 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 program.