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Pakistan wants confirmation from Saudi Arabia that it can secure additional deposits of $2 billion and a loan programme for $950 million from the World Bank and Asian Infrastructure Investment Bank.
“We are hopeful,” a government official working with the IMF answered when questioned about the development.
The approval of the Saudi government’s deposits is essential for completing the IMF agreement because Pakistan is having trouble negotiating with the IMF due to tensions between China and the US and because the IMF is hesitant to set a deadline for the completion of the agreement while the country is experiencing economic chaos.
The Resilient Institution for Sustainable Economy (RISE-II) of the World Bank has only provided an AIIB loan of USD 950 million if Pakistan receives the IMF bailout.
Pakistan Economic Crisis
Pak has historically struggled with economic catastrophe as a result of political unrest, corruption, and poor banking system management. The total external liabilities and debt of Pakistan amount to $130 billion, or 95% of its GDP.
With roughly 27.6%, inflation is at a 48-year high. In contrast, food inflation in January 2023 was 42.9 percent as opposed to 12.8 percent the previous month.
The key policy rate was increased by the State Bank of Pakistan by 300 basis points to 20 percent in order to combat persistent inflation. This has resulted in the country’s main interest rate reaching its highest level in 27 years.
Since gaining office, Sharif has struggled to get the economy moving, and last September saw the abrupt resignation of Miftah Ismail, his first finance minister.
While Pak negotiates for the next tranche of loans from the International Monetary Fund, Islamabad is looking for financial support from its close allies, including Saudi Arabia and China in addition to the UAE (IMF).
China has stepped forward to help Pakistan
In two installments of USD 700 million and USD 500 million, China had already refinanced two commercial loans totaling USD 1.2 billion. In the coming days, Chinese commercial banks will now refinance two additional installments totaling USD 500 million and USD 300 million.
Although Beijing refinanced its commercial loans prior to the signing of the deal with the lender, China has stepped forward to help Pakistan in this dire situation.
Official sources stated that Islamabad anticipates that the Chinese friends would also roll over the deposits in the upcoming weeks.
After receiving two installments of commercial loans from Chinese banks, Pakistan is hoping to increase its foreign exchange reserves, which at the end of June 2023 were around USD 4 billion, to USD 10 billion.
To complete the upcoming ninth review and release the crucial USD 1 billion tranches under the Extended Fund Facility (EFF) in 2019 by the Imran Khan government, Pakistan carried out all prior procedures to ensure the revival of the IMF programme.
According to the IMF’s recommendations, the government had implemented a number of measures, including the release of a mini-budget for generating additional tax revenues of Rs 170 billion by increasing the GST rate from 17 to 18 percent, increasing power tariff by over Rs 7 per unit, imposing a second power surcharge of Rs 3.82 per unit, increasing gas tariff, allowing significant exchange rate fluctuation, increasing petroleum development levy, and raising policy rate by 0.25 percentage points.
IMF: Pakistan must provide guarantees on financing the BOP deficit.
Pakistan will be expected to guarantee that its balance of payments deficit is completely funded for the remaining time under an IMF programme.
According to Esther Perez Ruiz, in an email response to Reuters on Monday, the lender wants Islamabad to complete a number of other tasks before it releases funding that has been stalled since late last year. External financing is one of those tasks.
After more than a month of talks to resolve policy framework problems aimed at reducing the fiscal deficit before the annual budget in about June, Pakistan intends to finalize a staff-level agreement with the IMF.
Apart from the external finance criteria that the IMF expected Pakistan to meet in order to clear $1.1 billion in payments under the $6.5 billion Extended Fund Facility agreed upon in 2019, Pakistan has accomplished nearly all of the previous steps. The programme comes to an end in June.