IMF Approves $700 Million Tranche for Pakistan Amid Economic Outlook Shift
IMF Approval and Economic Outlook The Executive Board of the International Monetary Fund (IMF) on Thursday approved the first review of the bailout package for Pakistan, paving the way for the release of $700 million loan tranche ahead of the maturity of a $2 billion lending granted by a Gulf nation. The immediate handing over of around $700 million brings the total disbursements under the Stand-By Arrangement with the IMF to $1.9 billion, the finance ministry said in a brief statement issued after the board meeting.
The board meeting was held nearly two months after Pakistan and the IMF reached a staff-level agreement. Pakistan and the IMF had signed the nine-month program in July 2023 for a $3 billion lending as a bridge financing ahead of an expected long-term deal. The IMF has further cut Pakistan’s economic growth projection to 2% from July’s estimate of 2.5%. Similarly, the IMF has cut the inflation rate forecast from 26% to nearly 24%, providing space for lowering the interest rates.
Foreign Exchange Reserves and Bilateral Support With the fresh approval of $700 million, Pakistan’s gross official foreign exchange reserves would reach a six-month high of $8.8 billion. In recent weeks, the IMF, World Bank, Asian Development Bank (ADB), and Asian Infrastructure Investment Bank (AIIB) have helped Pakistan in sustaining its foreign reserves at their current levels. A finance ministry official said a $2 billion loan of the UAE was maturing this month. He added that $1 billion would mature on the coming Wednesday and another $1 billion on January 23. He explained that on Tuesday, the finance ministry requested the UAE to further rollover the loan for a period of one year.
The response of the finance ministry spokesperson was awaited whether or not the UAE had accepted Pakistan’s request for the extension of the loan. The UAE has placed $3 billion with the State Bank of Pakistan (SBP) to support the thin foreign exchange reserves, including $1 billion handed over after the approval of the IMF program in July 2023. The $2 billion had been given at an interest rate of 3% but the latest $1 billion was extended at 6.5% — more than double of the old one, according to the finance ministry official.
Fiscal Consolidation and Reform Initiatives The IMF emphasized on continued fiscal consolidation to reduce public debt, while protecting development needs. Pakistan remains “determined to achieve a primary surplus of at least 0.4% of GDP in FY24, underpinned by federal and provincial government spending restraint and improved revenue performance support, if necessary, by contingent measures,” a statement by the IMF read. The country would also be required to “complete the return to a market-determined exchange rate”, it added. “Pakistan would also pursue state-owned enterprise and governance reforms to attract investment and support job creation, while continuing to strengthen social assistance,” the statement continued.
The IMF has revised Pakistan’s foreign loan requirements to $25 billion for this fiscal year. The Washington-based lender also lowered its inflation projection to 24% for this fiscal year — cutting it from 25.9%. The IMF remained successful in acquiring a date for the next general elections in Pakistan and in return ignored a few critical areas that in the past had become a cause for the failure of the last $6.5 billion bailout package. It also brought the activities of the Special Investment Facilitation Council (SIFC) under its purview. As against the old forecast of $32.9 billion, the IMF has now projected the foreign remittances at $29.4 billion — a reduction of $3.5 billion, said finance ministry sources. The exports have been marginally adjusted downwards to $30.6 billion, they added, while imports were projected at $58 billion. The global lender has projected that the public and publicly guaranteed debt may increase to Rs81.8 trillion or equal to 76.8% of the GDP by the end of this fiscal year. Due to unrealistic budgetary allocations, the IMF has now projected the size of Pakistan’s federal budget at Rs15.4 trillion — Rs1.1 trillion higher than the one approved by the National Assembly in June this year. In comparison with the Rs6.9 trillion budget deficit target, the IMF during the recent review talks has estimated it to peak to a record Rs8.2 trillion — a slippages of Rs1.3 trillion. According to the IMF projections, the current expenditures in this fiscal year may remain around Rs14.6 trillion — higher by Rs1.24 trillion.
In Summary In summary, Pakistan has obtained the IMF’s approval for the review of its bailout package and the disbursement of a $700 million loan tranche. However, the country still faces economic challenges and must continue implementing reforms to ensure its stability and economic growth.
