WB links $450m loan approval to IMF review

ISLAMABAD: Pakistan’s stakes for securing dollar loans from multilateral creditors have risen manifold, as the World Bank (WB) has linked approval of the second RISE-II loan with the completion of the ongoing IMF review.

The WB’s RISE-II (Resilient Institution for Sustainable Economy) program envisages program loans of $450 million. The Asian Infrastructure Investment Bank (AIIB) would also provide co-financing of $250 million, so in totality, Pakistan is eyeing to secure $700 million in program loans within the ongoing financial year. However, the approval of the second RISE programme has been linked with macroeconomic stability and the completion of the pending IMF review.

The revival of the IMF programme has so far proved a hard nut to crack, as both sides engaged in talks in Islamabad from January 31 to February 9 but the staff-level agreement could not be realized.

Almost three months have passed but the SLA is yet to be struck mainly because the gross external financing gap could not be fulfilled up to the satisfaction of the IMF. When Pakistan and the IMF had accomplished physical talks on February 9, the IMF estimated that Pakistan required gross external financing of $7 billion for the ongoing financial year.

Keeping in view the improvement in the Current Account Deficit (CAD) which ultimately turned into a surplus of $654 million for the last month, the IMF slashed the requirement of external financing needs to $6 billion and finally to the level of $5 billion.

Out of $5 billion in external financing needs, Pakistan secured confirmation on the financing of $2 billion from the Kingdom of Saudi Arabia and $1 billion from the United Arab Emirates. However, formal agreements have not been done so far. The Pakistani authorities however claimed that a formal agreement with KSA was exchanged and it would be done.

Now the remaining $2 billion in external financing remain unfulfilled. The Pakistani authorities argued that the WB and AIIB were expected to disburse $700 million in program loans within the period of the ongoing financial year. Out of the remaining $1.3 billion, Pakistan expects $300 million in project financing from the international donors for flood-affected areas till end June 2023. Now the remaining $1 billion financing is required from the international commercial banks. It is not yet known how this $1 billion financing from the commercial banks would be secured because the banks were asking for signing an agreement with the IMF but the IMF was asking for getting confirmation.

The Pakistani side did not rule out the possibility of involvement of “political angle” behind these dillydallying tactics on the part of the IMF. Pakistan has been sandwiched between the US and China and the authorities do not have a crystal clear clue about how to proceed further to steer the country out of the severe crisis.

This reporter sent out a question to the IMF’s spokesperson based in Islamabad and inquired whether the WB was processing the RISE-II program loan of $450 million till the end of June 2023.

The WB’s spokesperson stated, “The World Bank continues to work with the Government of Pakistan on preparation of the RISE-II Development Policy Operation, including discussions around supported policy actions on which there has been considerable progress recently; the adequacy of the macroeconomic framework; the financing amount; and the timeline for approval, in particular, as it relates to the completion of the ongoing IMF review”.

This reporter also contacted former economic advisor, Dr Khaqan Najeeb on Monday. Najeeb explained that the 9th review based on September 22 data with the IMF was largely stuck on the issue of the financing gap. Both sides have moved closer as the KSA, UAE, and multilateral financing gets confirmed.

As far as commercial financing was concerned with a very low country credit rating, it’s a tough call but restoration of the program with the IMF can help in this regard, he added. He stressed Pakistan’s access to multilateral project aid and program financing like Rise 2 and associated co-financing was largely dependent on the IMF program revival.

With $3.7 billion in repayments till June 30, it is of paramount importance that Pakistan secures all the dollar financing including the IMF, friendly countries, bilateral, multilateral, and some commercial loans, he concluded.