IMF rejects cash strapped Pakistan govt’s claim of meeting loan conditions

The IMF has rejected the cash-strapped Pakistan government's claim that it has met all the conditions to reach an agreement with the global financial body to release funds under an already agreed loan facility, according to a media report.

The International Monetary Fund signed a deal in 2019 to provide USD 6 billion to Pakistan on fulfilment of certain conditions.

The plan was derailed several times and the full reimbursement is still pending due to insistence by the donor that Pakistan should complete all formalities.

Prime Minister Shehbaz Sharif and Finance Minister Ishaq Dar have repeatedly claimed that Pakistan met all the prior conditions agreed for reaching a staff-level agreement and there was no reason for holding back the agreement.

The Express Tribune newspaper reported that it got a statement from the fund on Friday, negating the claim made by the government with respect to meeting all prior actions necessary to complete the 9th review.

“The IMF continues to work with the Pakistani authorities to bring the 9th review to a conclusion once the necessary financing is in place and the agreement is finalised,” the newspaper quoted Nathan Porter, the IMF Mission Chief to Pakistan, as saying.

Porter’s statement negated what the Pakistani authorities have been claiming since February 9, when the face-to-face talks ended inconclusively, the newspaper said.

Nathan did not explain the quantum of the necessary financing that Pakistan has to put in place to conclude the 9th review for the USD 1.2 billion loan tranche that has been delayed by seven months now.

The finance minister had said that Pakistan needed USD 6 billion to bridge the financing gap by June this year. Saudi Arabia and the United Arab Emirates had assured Pakistan of providing USD 3 billion but there are no firm assurances for the rest of the loans.

Pakistan’s gross official foreign exchange reserves remain at USD 4.5 billion. The country needs to pay nearly USD 4 billion to the world on account of principal and interest on debt till June this year.

Since the government does not have a credible financing plan for the July-December period of the next fiscal year, the sources said, Pakistan also needs to arrange funds to repay the loans during the first half of the next fiscal year.

The external debt repayments, including interest, for the July-December period amount to USD 11 billion, said the Finance Ministry sources.

Even if China and Saudi Arabia roll over their short-term debts, Pakistan will still need over USD 4 billion to repay the international creditors during the first half of the next fiscal year.

These include payments to the World Bank, the Asian Development Bank, Saudi Fund for Development, Islamic Development Bank and Chinese commercial banks.

Porter has also mentioned the next fiscal year’s budget in his statement, which the government wants to present around June 10.

“In addition, the IMF supports the authorities in the implementation of policies in the period ahead, including in the technical work to prepare the fiscal 2024 budget, which is to be passed by the National Assembly before end-June,” said Porter.

The Ministry of Finance, already struggling to meet other conditions, seemed irritated by the IMF’s new demand. Senior finance ministry officials argued that the IMF should not link the approval of the 9th review with the next year’s budget.

They said that the issue of the fiscal year 2023-24 budget should be taken up at the time of the discussions for the 11th review.

“The IMF’s demand is worrisome,” said a Cabinet member on condition of anonymity.

Less than two months are left in the expiry of the stalled USD 6.5 billion IMF programme.

There seems to be no possibility that Pakistan and the IMF will conveniently complete the remaining three outstanding reviews of the programme, the report said.

The finance ministry sources said that the finance secretary recently urged Porter to review the demand for an agreement on the next year’s budget. However, the IMF, already agitated by the government’s contradictory claims about the completion of the conditions, may not offer any major relief to Pakistan.

There are concerns that the coalition government may try to unveil a politically-oriented budget, which will make it more difficult to take the country out of the economic crisis in the near future, the paper said.