Political vacuum makes IMF noncommittal on next tranche

ISLAMABAD: In the wake of heightening political temperature in Pakistan, the IMF-sponsored $6 billion programme has turned into a stalled mode, with no possibility for approval of the next tranche within the ongoing month.

In order to avert a full-fledged balance of payment crisis and run down on depleting foreign currency reserves, Islamabad will have to manage $5 billion as a bridge financing gap till June 2022 in case the IMF programme remains in a stalled mode. When the IMF programme hit snags, the other multilateral creditors such as the World Bank and Asian Development Bank stopped their budgetary support/programme loans and attached approval with a Letter of Comfort (LOC) from the IMF.

Top official sources privy to dealing with the IMF told this scribe on Monday that only three options are left, including negotiating for evolving a consensus on the Memorandum of Financial and Economic Policies (MEFP) for the conclusion of the 7th Review during the tenure of incoming interim set-up, wait for new general elections till July/August and then extend the time-frame of the ongoing IMF program for a few months beyond September 2022 and thirdly scrapping the existing program and negotiating a fresh deal with the IMF when the new government comes into power after the general elections. Keeping in view the existing three options, Pakistan will have to manage dollar inflows of $5 billion for the next few months for averting a crisis like situation.

“A financing gap of $2 billion would emerge from the IMF as Islamabad envisages external financing from the Fund through approval of 7th and 8th reviews under $6 billion Extended Fund Facility (EFF). Pakistan will have to manage another $3 billion from bilateral donors to bridge the yawning financing gap,” said top official sources while talking to The News on Monday. Pakistan and the IMF were recently holding parleys for the completion of the outstanding 7th Review and release of $960 million tranche, which now seems impossible to be accomplished within the ongoing month.

This scribe contacted the IMF’s Resident Chief, Esther Perez Ruiz, and inquired about the fate of EFF program. She replied that “The Fund looks to continue its support to Pakistan and, once a new government is formed, we will engage on policies to promote macroeconomic stability and enquire about intentions vis-a-vis program engagement. There is no concept of suspension within IMF programs." The IMF’s representative gave a conventional reply in perspective of Islamabad's economic and political developments.

Even in 2018, Pakistan went through similar challenges, the official sources reminded when the IMF had told Islamabad that they would negotiate a deal with the government after the 2018 elections. In order to meet the balance of payment conditions, former finance minister Dr Shamshad Akhtar had to manage $2 billion in support from China. But this time around, a difficult situation has emerged on the macroeconomic front with the depletion of foreign currency reserves at a supersonic speed that stand at $12.04 billion on March 25, 2022. If the current account deficit started escalating in the remaining months, then the balance of payment crisis will be knocking at the doors around the time of general elections after three months in the July/August period.

The Ministry of Finance in its tweet on Monday night said “Finance Division and IMF remain engaged in data sharing and reform discussion as part of EFF. There is no truth to speculation about the suspension of the programme. IMF has also confirmed the same and also clarified that it remains committed to Pakistan’s macroeconomic stability”.

One official commented that the Ministry of Finance and IMF were publicly showing their commitment but both were non-committal about the finalization of the outstanding 7th review under the EFF arrangement.