Pakistan assures IMF reserves will rise to $11.7bn by end of FY24

ISLAMABAD: Pakistan has assured the International Monetary Fund (IMF) in the Letter of Intent (LoI) that it would take all-out measures to jack up gross foreign exchange reserves by $7.65 billion, increasing it up to $11.7 billion by the end of the financial year 2024 from the existing level of $4.056 billion in the financial year 2023.

The LoI, duly signed by Finance Minister Ishaq Dar and State Bank of Pakistan (SBP) Governor Jameel Ahmed, extended assurances to the IMF and its executive board under a $3 billion stand-by arrangement (SBA) for nine-month period that the buffer of foreign exchange reserves would be built up for facing any exogenous shocks to the national economy. If the gross foreign exchange reserves would be increased to $11.7 billion by the end of June 2024, it would be sufficient to meet import of goods and services requirements for a period of 1.8 months.

The balance of payment (BoP) chart, agreed upon by the IMF and Pakistani side, showed that the projected disbursements of foreign loans stood at $15.01 billion from multilateral and bilateral creditors during the current financial year 2023-24, starting from July 1, 2023, and would end on June 30, 2024.

The technical work, done by the IMF and Pakistani side on the BoP data, showed that Pakistan would have to ensure external financing from multilateral and bilateral creditors during the current fiscal year. Pakistan wants additional $2 billion deposits from the Kingdom of Saudi Arabia and $1 billion from the United Arab Emirates (UAE). The Islamic Development Bank (IsDB) has agreed to provide $1 billion loan programmeme. The programme loans and project financing from the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank (AIIB) were also being worked out to secure total disbursement from all multilateral and bilateral avenues to the tune of $15 billion.

Pakistan will have to pursue bilateral partners, especially China, Saudi Arabia and the UAE for rollover of their existing deposits of $2 billion, $3 billion and around $2 billion, respectively in the current financial year.

The IMF executive board is scheduled to meet on July 12, 2023 in Washington D.C for considering Pakistan’s request sent through the LoI for granting approval to $3 billion short-term bailout package and release of $1 billion tranche. This $1 billion tranche would be disbursed within next few days after the Fund’s executive board’s approval.

The IMF staff has already circulated the copies of the LoI among the executive board members in which Finance Minister Ishaq Dar and the SBP governor gave assurances to undertake crucial reforms in fiscal and energy sides in order to overcome slippages on fiscal accounts. Islamabad also assured the IMF to pursue energy sectors including implementation of all steps to control the monster of circular debt in the energy sector. The energy sector required raising power and gas tariffs as determined by the regulators.

A Finance Division official told this scribe that there might be two reviews under the SBA programmeme for nine-month period under which reviews would be undertaken by the IMF mission in September and December 2023 with the expectation that each review would enable disbursement of $1 billion instalment.

About power and gas tariff, the official said once the determination of NEPRA [National Electric Power Regulatory Authority] is finalised, the baseline tariff would be jacked up accordingly. About the gas tariff, the official said he would have to ascertain facts on the subject. However, the Oil and Gas Regulatory Authority (OGRA) had already recommended jacking up gas tariff in the range of 45 and 50 per cent for two respective giants of gas utilities. OGRA had given its determination in early June 2023 and there would be 40-day timeframe before the government to take a decision; otherwise, it would stand notified in the second week of July 2023.