The terms of the bailout as outlined by the IMF.
Calls on Pakistan to uphold its Constitution, as Shehbaz contacts Georgieva in an attempt to restart loan negotiations.
As Prime Minister Shehbaz Sharif contacted IMF Managing Director Kristalina Georgieva on Monday, presumably in a last-ditch effort to avoid default, the IMF urged Pakistan to resolve its political disputes in accordance with the Constitution.
After four months of failed loan negotiations, the finance ministry finally met with Georgieva and Shehbaz on Saturday, according to government sources quoted by The Express Tribune.
IMF Mission Chief to Pakistan Nathan Porter made an unprecedented remark two days after the highest level of interaction was established between Shehbaz and Georgieva, shifting the IMF’s attention to the political sphere.
While we do not comment on internal politics, we do hope that a peaceful solution is found that is in accordance with the Constitution and the rule of law.
The announcement followed a crackdown on PTI workers, reports of abductions, the failure to hold elections in the two provinces within the constitutionally mandated 90 days, and the trial of civilians in military courts using the Army Act. The IMF typically refrains from making statements on political issues.
Porter detailed the requirements that Pakistan must achieve in order to negotiate an agreement with the foreign lender in response to inquiries from The Express Tribune. Among these include reestablishing a well-functioning foreign currency market, securing foreign loans, and passing a new budget in conformity with the IMF’s guidelines.
According to the sources, the prime minister chose to intercede with the IMF because he considered them as the only hope of averting a default. The prime minister told the finance minister to give the IMF information about the upcoming budget after his meeting with the IMF head.
The call came one day before Finance Minister Ishaq Dar rebuked the international financial institution. According to comments Dar made to a private TV programme, “we are at a point where it would be extremely biassed and shameful for them [IMF],” if the 9th review did not take place now.
Top finance ministry official confirms PM called IMF managing director to ask for her help breaking impasse, as reported by The Express Tribune.
Before the February review meetings, the prime minister had called Georgieva and asked for her help in getting things rolling.
However, Pakistani officials continue to urge that the IMF can shorten the review completion term by holding a board meeting within two weeks of the date of publication of the staff-level agreement, despite the fact that only one month remains before the programme expires.
“Sustaining strong policies and obtaining sufficient financing from partners remain key for Pakistan to maintain macroeconomic stability,” Porter said.
He went on to say that in preparation for a board meeting before the present programme expires at the end of June, IMF staff is maintaining dialogue with the Pakistani authorities.
“This effort will centre on re-establishing orderly foreign exchange markets, passing an FY24 budget in line with programme goals, and securing sufficient funding.”
According to the authorities, however, Pakistan does not meet all three criteria at the present time. On Monday, the open market value of one dollar in rupees was around Rs316, compared to the interbank rate of Rs285.41. According to the sources, the new budget is drastically different from a plan that was discussed with the IMF.
In his analysis, Porter stated, “More broadly, overcoming the present economic and financial challenges would require sustained policy efforts and reforms for Pakistan to regain strong and inclusive private-led growth.”
For continued sustainability, lowering inefficiencies that impact the private sector, and enabling a scaling up of social and development spending, the head of the IMF mission emphasised the importance of strengthening domestic revenue mobilisation and eliminating SOE losses to create fiscal space.
According to the sources, the prime minister recently reminded the IMF chief that Pakistan had met all the requirements agreed upon in February of this year and that the fund should immediately declare a staff-level agreement. The IMF managing director reportedly requested new budget specifics, according to sources.
The Ministry of Finance first declined to comply with the IMF’s request for the following fiscal year’s budget on the grounds that the 9th review only applied to the period of July through September 2022.
A senior government official has suggested that an agreement at the staff level may be conceivable following the introduction of the budget, provided that it is consistent with a mutually agreed upon fiscal framework.
However, preliminary information revealed that the budget under discussion was expansionary in nature and would need to be reduced to meet the standards set by the IMF.
Defence Minister Khawaja Asif is in charge of one of the seven committees the prime minister has formed to realign the planned budget with his political aims, which includes raising salaries, pensions, and the distribution of subsidies.
Pakistan’s government has secured $3 billion in loan guarantees from Saudi Arabia and the United Arab Emirates (UAE) to close the funding gap until June of this year, as requested by the International Monetary Fund (IMF).
Dar implied that $6 billion will be arranged by Pakistan in advance of the staff-level agreement and another $6 billion would follow. He also said Pakistan was willing to give the IMF information on its budget and currency policies.
The $6.5 billion plan has been stuck in limbo since last November, and it will officially end on June 30th. About $2.6 billion, including a $1.2 billion tranche tied to the conclusion of the 9th review, have not yet been disbursed by the IMF. “Our understanding is that the IMF would complete the 9th review,” Dar said on Sunday.
Foreign exchange reserves of $4.1 billion are insufficient for $25 billion repayments in Pakistan’s next fiscal year. Without the protection of the IMF, Pakistan is unable to secure loans from other financial institutions.
According to the sources, the International Monetary Fund (IMF) has not yet accepted the government’s revised projection of roughly $4 billion to $4.5 billion for the current account deficit for this fiscal year.
According to early estimates, the government was planning to announce a deficit budget of about 7.4% of GDP, or Rs7.8 trillion, in a stimulus-oriented budget of roughly Rs14.6 trillion.
The primary budget surplus was a goal set by the IMF as part of the $6.5 billion rescue package for Pakistan. This surplus is calculated by subtracting the amount of money collected in taxes from the amount of money spent on government operations. Public debt reduction was touted as a goal of the primary budget surplus.
In August of 2018, the IMF estimated a primary budget surplus of 0.6% of GDP for FY 2023-24, whereas the finance ministry based their budget projections on a surplus of only 0.1% of GDP. A revenue goal of Rs9.2 trillion has been proposed by the FBR, which is 8.7% of GDP and much lower than the IMF’s framework.
Read more about how Dar may be ending the IMF programme
According to the IMF’s latest Fiscal Monitor report, the deficit in fiscal year 2023–24 might reach 8.3% of GDP. The International Monetary Fund predicted in August of last year that the deficit for the upcoming fiscal year would be 4% of GDP.
However, up until last week, the finance ministry had proposed a deficit equal to 6.9% of GDP, or Rs7.3 trillion.
Interest payments may continue to take up about 7% of GDP (Rs7.5 trillion), according to the sources. In order to establish a primary budget surplus to the IMF’s satisfaction, the government will need to dramatically raise revenues.
Dar, in a televised interview, stated that Pakistan is against combining the 9th and 10th reviews into one. According to a tweet posted by Shehbaz on Monday, “We do face the economic challenges but the doomsday scenario is past us.”
According to the prime minister, Pakistan is working with friends and partners to bridge the finance gaps where necessary and is making sincere attempts to solve the difficulties through economic belt-tightening and prompt policy reforms.
