Pakistan gets $705.6m IMF tranche

KARACHI: The central bank has received $705.6 million from the IMF as the second tranche of a $3 billion bailout — a move that can unlock further external financing, bolster foreign exchange reserves and support the currency.

Another encouraging development was that Pakistan the same day received payment relief as the UAE rolled over a $2 billion loan that was already in place.

“The SBP has received SDR528 million (equivalent to $705.6 million) in value 16th January 2024 from IMF following successful completion of the first review by the Executive Board of IMF under Stand-By Arrangement (SBA),” the SBP said on X.

“This disbursement will be reflected in SBP reserves for the week ending on 19th January 2024,” it added. The IMF executive board completed the first review of Pakistan’s economic reform programme supported by its stand-by arrangement (SBA) and approved the loan last week. This fresh payout has brought Pakistan’s overall IMF disbursement under the SBA to $1.9 billion.

“The UAE has confirmed rollover of its two deposits of US$1.0 billion each placed with State Bank of Pakistan for another one year which were maturing in January 2024,” the SBP said.

The financial assistance from the IMF and the UAE will provide some relief to the beleaguered nation’s economy, which is straining under heavy repayments of its external debt. Besides, this is a positive sign for the country ahead of the elections next month.

“Following this [IMF] disbursement, the SBP reserves are expected to increase to USD8.9bn, reaching the highest level since October 28, 2022. Additionally, USD 2bn rollover by the UAE will also help the country fund the external financing gap for FY24,” said Tahir Abbas, head of research at Arif Habib Limited.

The forex reserves held by the SBP stood at $8.15 billion (enough for around two months of imports) as of January 5. The substantial repayment of foreign debt will pose ongoing hurdles for the already shaky economy of the country. In this fiscal year, Pakistan is required to repay $24.6 billion in foreign loans.

As the government has approximately $22–24 billion in external debt obligations in FY24–25, the next IMF programme will be crucial for maintaining discipline amid larger reforms required for sustainable growth. The IMF expects Pakistan’s gross reserves to be $9.1 billion by June 2024, up from its earlier estimate of $8.9 billion. Analysts anticipate reserves to be $8-10 billion by June 2024.

“It’s good for the forex liquidity, foreign reserves and investor confidence. Also good for business as improved FX liquidity helps essential imports which are needed for production/manufacturing,” said Samiullah Tariq, head of research at Pak-Kuwait Investment Company. “Support from the IMF and the UAE would instill confidence in other lenders, markets, investors, and businesses.”