Thursday May 30, 2024

Pakistan approaches US diplomats as IMF seeks more assurances

IMF also demanded abolishing the power sector subsidies on a permanent basis

By Mehtab Haider
March 14, 2023
The International Monetary Fund (IMF) asks Pakistan to raise electricity and gas prices. — AFP
The International Monetary Fund (IMF) asks Pakistan to raise electricity and gas prices. — AFP

ISLAMABAD: The International Monetary Fund (IMF) has asked Pakistan to get confirmation on external financing needs of $6-7 billion from the Kingdom of Saudi Arabia, the UAE, Qatar and multilateral creditors to fill the gap till the end of June 2023.

The IMF considers that without full surety of external financing, the ‘sustainability’ of Fund’s program could not be guaranteed, said an official. A senior government official said late in the night that the IMF side held a final meeting with the State Bank of Pakistan (SBP) officials on Monday, and now they hoped that the staff-level agreement (SLA) would be signed in the next few days.

According to the official, the IMF also demanded abolishing the power sector subsidies on a permanent basis, as the Fund staff raised objections that the government had made commitments only till the end of the next financial year, 2023-24.

However, the IMF wanted a commitment to abolish power subsidies on a permanent basis; therefore, they asked for bringing changes in the wording of the Memorandum of Economic and Financial Policies (MEFP) in the last meeting, held in the previous week. Now, Islamabad is left with no option but to seek help from Washington D.C., and its western allies, in order to secure a ‘lenient treatment’ from the IMF for moving towards a staff-level agreement.

Minister for Finance Ishaq Dar had established contacts with the US diplomatic corps, based in Islamabad, and made requests to help end the lingering stalemate with the help of the US treasury department.

“Without the blessing of Uncle Sam, things may not move in the desired direction, despite Pakistani authorities claiming that they had implemented all prior actions under the advice of the IMF, which were possible for them. Now the IMF is asking to get 200 per cent assurances from the friendly countries and multilateral creditors to fill the financing gap of $6-7 billion on external account till the end of June 2023,” top official sources confirmed to The News on Monday.

One official privy to the ongoing parleys with the IMF disclosed that the external financing gap has now been reduced from $7 to $6 billion due to the latest talks, but the IMF made it clear that Islamabad would have to get assurances from friendly countries and multilateral creditors for signing of the SLA. “The IMF considers that the ball is in the Pakistan court, but Islamabad high-ups say that when the IMF will grant its assent, the external financing gap would be bridged,” added the official.

It is yet to be seen how the IMF and Pakistani sides would proceed further, as each side was holding the other responsible for delay in signing of the much-awaited SLA.

The foreign exchange reserves, held by the SBP, stood at $4.3 billion on March 3, 2023, after receiving $1.2 billion re-financing from Chinese commercial loans. Pakistan is expecting another $800 million from Chinese banks within a few days. Islamabad also made a request to Beijing to grant rollover on SAFE deposits of $2 billion, which would become due the next week.

The IMF wants all-out confirmation on external financing before moving towards the signing of the SLA, but Pakistani authorities cite the example of Sri Lanka and argue that when the agreement would be struck, then the financing gap would easily be bridged for the current fiscal year.

The IMF side raised a point here in the discussion and informed Pakistani authorities that without sustainability, it would be hard for them to defend the Extended Fund Facility (EFF) and its envisaged targets and progress made by Islamabad in front of members of the Fund’s executive boards. They also reminded that executive directors representing bilateral donors of Pakistan made a commitment for providing financing on the occasion of the approval of the 7th and 8th reviews last August 2022, but these commitments did not materialise fully. Thus, the IMF’s credibility also lies in the danger zone if the commitments on external financing needs could not be materialised within the stipulated timeframe. It’s a difficult situation for Pakistani authorities; however, they expressed their firm belief that the issue could be sorted out at political level by securing help from the US and its allies.