Pakistan needs an impressive budget if it wants to attract more funding: IMF
A $6.5 billion EEF loan is in jeopardy before FY24. Tomorrow, the government will unveil its budget.
KARACHI:
The International Monetary Fund (IMF) has stated that Pakistan must meet three conditions before any of the $2.5 billion remaining to be disbursed under a credit programme set to expire at the end of this month will be released. These conditions will begin with the presentation of Pakistan’s budget on Friday.
Pakistan’s IMF resident representative Esther Perez Ruiz stated on Thursday that the $6.5 billion EFF would expire at the end of the month, leaving only enough time for one more IMF board assessment.
Currency reserves in Pakistan are hardly enough to pay imports for one month. It had intended to get $1.1 billion in November, but the IMF is requiring many conditions to be completed before it will release any additional funds.
“As communicated to the authorities, there can be one remaining Board meeting under the current EFF at the end of June,” Perez Ruiz said in an email answer to Reuters.
“To pave the way for a final review under the current EFF, it is essential to restore the proper functioning of the FX market, pass an FY24 Budget consistent with programme objectives, and secure firm and credible financing commitments to close the $6 billion gap ahead of the Board,” she continued.
There is a lot the government needs to do in the next several weeks before the EFF runs out.
The International Monetary Fund (IMF) had originally requested that Pakistan raise $6 billion in external finance commitments from other sources; however, as of this writing, Pakistan had raised only $4 billion, largely from Saudi Arabia and the United Arab Emirates.
Pakistan removed daily limits on fluctuations earlier this year in response to pressure to move to a more market-determined exchange rate regime and to close an unofficial currency market, but analysts suspect that the authorities are still trying to manage the exchange rate out of fear that the rupee could fall too far.
The IMF’s general expectations for the forthcoming budget were outlined by Perez Ruiz.
“The focus of discussions over the FY24 budget is to balance the need to strengthen debt sustainability prospects with creating space to increase social spending,” she said.
Perez Ruiz noted that more investment of this kind would help cushion the blow of inflation for Pakistan’s most disadvantaged citizens, but that the government still needed to make more headway in identifying spending and revenue generating measures.
With inflation at a record 37.97% in May, the country is in the midst of an economic crisis.
In an effort to convince the IMF to release money, the government has increased taxes, increased energy tariffs, and reduced subsidies, while the central bank has increased policy interest rates to a record 21%.
Only eight of the ten scheduled reviews have been carried out by the IMF throughout the EFF, with the most recent review having taken place in August of last year.
Later on Thursday, before the budget is due on June 9th, Pakistan will release an economic study containing vital numbers.
