Why Pakistan’s long-awaited IMF tranche is important

KARACHI: Pakistani Prime Minister Shehbaz Sharif said on Tuesday he hoped a bailout decision from the International Monetary Fund would come in a day or two, capping off protracted negotiations as the country faces an acute balance-of-payments crisis. 

Islamabad is racing against time to unlock $1.1 billion under the lender's ninth review of a $6.5-billion Extended Fund Facility agreed in 2019. The programme expires on June 30.

Here are some facts about the importance of unlocking the funds for the cash-strapped South Asian country of 230 million people and the challenges it has faced:

Delayed tranche

Pakistan has cleared eight of the 11 listed programme reviews, with the ninth review pending since November last year. The delay is already the longest since at least 2008.

-The ninth review is to release a tranche of $1.1 billion, leaving about $1.4 billion on the table in unlocked funds. It is unclear if an IMF agreement would release the entire amount.

-The ninth review had been stalled due to differences between the fund and Islamabad over policy actions, including external financing needs and a budget that meets programme goals.

Hole in finances

The government has earmarked $2.5 billion in external receipts from the IMF in its federal budget for FY24, which means the government is budgeting for the 10th and 11th reviews too, or a new IMF programme after the current one expires.

-Pakistan needs upwards of $22 billion to service external debt, make interest payments, and finance its current account for FY24. Reserves, at $3.5 billion, are at a critical level, enough to cover barely one month of controlled imports.

-Pakistan's credit rating has suffered due to macroeconomic uncertainty: Three key rating agencies recently cut Pakistan's ratings - Standard & Poor's rating for Pakistan stands at CCC+, Moody's at Caa3 and Fitch at CCC-.

Secondary benefits

A successful review would not only release much-needed funds, but also unlock credit from other financiers who are looking for a clean bill of health from the IMF for the ailing $350 billion economy. This includes raising money from the private market.

-The country has received financing commitments from friendly countries Saudi Arabia and the United Arab Emirates of $3 billion, while China has granted rollovers on its debt payments due.

-National elections are due by November this year and the government has said the decision to enter a new IMF programme will be a decision for the incoming administration.

Tough conditions

The initial draft of the budget presented in parliament earlier this month failed to meet IMF expectations but was hurriedly revised to introduce new taxes and expenditure cuts.

-The country's central bank also hiked the key rate by 100 basis points in an emergency meeting on Monday barely two weeks after keeping the rate unchanged in a scheduled meeting.

-Hopes of a last-minute bailout rose following meetings between Sharif and IMF Managing Director Kristalina Georgieva in Paris this month, followed by marathon meetings between IMF staff and finance ministry officials.