IMF seeks Pakistan’s credible assurance on external financing for loan revival

International Monetary Fund’s (IMF) resident representative Monday warned that Pakistan faces the daunting task of providing credible assurances that its balance of payment deficit was financed for the remainder of the multilateral lender’s loan program term.

The external financing is one of the last in a string of prior actions the lender wants Islamabad to complete before it clears funding stalled since late last year, Esther Perez Ruiz told Reuters in an e-mailed response on Monday.

Pakistan hopes to sign a staff-level agreement with the IMF after over a month of negotiations to settle policy framework issues aimed at curtailing the fiscal deficit ahead of the annual budget around June.

The country has completed almost all of the prior actions except for the external financing requirement the IMF wanted it for clearing $1.1 billion in disbursements under the $6.5 billion Extended Fund Facility agreed upon in 2019. The program ends in June.

"All IMF program reviews require firm and 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. Pakistan is no exception," IMF's Ruiz said.

Finance Minister Ishaq Dar said last week that the external financing assurance was not one of the IMF's conditions for clearance of the funding.

He said Pakistan needed $5 billion in external financing for the balance of payments deficit in the fiscal year ending June 30, adding the IMF believed it should be $7 billion.

The IMF representative also said that Pakistan was committed to aligning its official and informal foreign exchange market rates, days after the cash-strapped country's currency plunged dramatically.

A permanent power surcharge on consumers was also among measures planned by Pakistani authorities to address energy sector debt, she said.

Meanwhile, Pakistan is seeking confirmation from Saudi Arabia to secure additional deposits of $2 billion and a $950 million loan from the World Bank and Asian Infrastructure Investment Bank (AIIB) for the signing of a Staff-Level Agreement (SLA) with the International Monetary Fund (IMF) within the coming week, reportedly.

“We are hopeful,” a government official dealing with the IMF replied when asked about the development.

The linked $950 million loan of World Bank’s Resilient Institution for Sustainable Economy (RISE-II) and AIIB will be approved only if Pakistan secures the IMF bailout.

Another official assured that Pakistan was expecting to strike the SLA with IMF in the next few days, however, the Fund was reluctant to give any time frame for finalizing the agreement.

China had already re-financed two commercial loans of $1.2 billion in two instalments, $700 million and $500 million. Now two more instalments of $500 million and $300 million would be re-financed by Chinese commercial banks in the coming days.

Pakistan is facing difficulty in its talks with IMF due to the increased hostility between China and the United States as they have to secure the SLA in a delicate balancing act to steer the economy and diplomacy in such a way that suits Islamabad’s larger interest.

SOURCE: REUTERS