Pakistan is placing its hopes on Geneva’s promises to close a funding gap of $6 billion.
IMF trust deficit widens in Islamabad as government announces increase in gasoline subsidies.
ISLAMABAD: Because of its choice to continue providing subsidies for gasoline in the face of impending default, the government has staked its reputation on the realization of Geneva commitments to partially close the $6 billion financing shortfall.
As Pakistan and the IMF were still working out the specifics of how the $6 billion would be financed, Islamabad shocked the international lender by announcing a Rs50 per liter gasoline subsidy.
The decision to provide the subsidy sent a signal to the rest of the world that the Pakistani government was still not committed to cleaning up its act.
Reports claimed that both parties were negotiating the specifics of the $6 billion loan before the formal virtual conversations finished.
Pakistan lacked concrete information regarding the financing of the remaining amount, with the exception of the $3 billion known pledges by Saudi Arabia and the United Arab Emirates.
According to the sources, “We have asked the IMF to take into account a $450 million to $700 million financing out of the $9.7 billion Geneva pledges.”
The possibilities of Pakistan receiving half a billion dollars in response to the Geneva pledges, they continued, are extremely slim.
Despite appearing small, the $450 million figure is crucial for achieving the $6 billion digit, according to the sources.
The sources stated that Pakistan wanted to arrange the remaining $3 billion through project financing and business loans because the IMF had concerns about Pakistan’s capacity to swiftly raise commercial debt.
The IMF had concerns that Islamabad wouldn’t be able to quickly raise the commercial debt at the time.
Due to the foreign commercial banks’ reluctance to extend loans without the protection of the multilateral lender, the IMF had urged Pakistan to produce half of the $6 billion before the board meeting. Pakistan may not have been able to meet this requirement.
Once the few outstanding issues, such as the government’s recently announced gasoline subsidy program, are resolved, a staff level agreement will be reached, according to Esther Perez, the IMF’s resident representative.
Ishaq Dar, Pakistan’s finance minister, requested that the IMF take Pakistan’s loan request into consideration during its meeting on March 24. Yet since February 9, no agreement at the staff level has been reached by the parties.
The IMF viewed Prime Minister Shehbaz Sharif’s move to provide a gasoline subsidy as another breach of credibility.
The government has yet to give the international lender the information it has requested about the petrol subsidies.
The early announcement of the subsidy by the Petroleum Division alarmed Washington.
The country’s foreign exchange reserves, which are currently at a catastrophic level of $4.4 billion despite a $1.7 billion injection from China, have once again deteriorated.
China transferred a $500 million commercial loan last Friday, which, according to the sources, was nearly completely repaid in three days due to some maturing repayments.
Given that it must repay $4.1 billion in debt in the final three months of this fiscal year, the government will need to act quickly on the IMF front.
A $2 billion debt that was due to mature on Thursday has not yet been renewed by China.
However, diplomatic sources claim that it was merely a “procedural delay”.
Bilateral and multilateral creditors made $9.7 billion in pledges for flood restoration and reconstruction projects at the Geneva conference in January.
The Islamic Development Bank (IDB) reportedly tallied a usual $1.2 billion annual oil credit facility three times, according to The Express Tribune.
The majority of the $9.7 billion pledges made at the Geneva summit, according to the sources, were not brand-new funds.
Instead, the lenders and donors have redirected their current funding streams to flood-related projects.
They further stated that $3.6 billion had been provided for oil finance as part of the IDB’s routine operations in Pakistan out of the $4.2 billion loan that the IDB had guaranteed at the Geneva conference for the restoration of the flood-damaged infrastructure.
The sum committed at the Geneva meeting will decrease to $6.1 billion if the $3.6 billion oil finance is taken out.
According to the sources, the IDB’s net additional funding for flood-related initiatives would be less than $600 million.
Also, the international lenders’ $2.7 billion in already-committed money were redirected to flood-related operations.
Also, the $2 billion that the World Bank revealed at the conference in Geneva was not brand-new money.
The Saudi Fund for Development, according to the sources, likewise did not contribute any further funding.
Some in the finance ministry held the mistaken belief that at least $1 billion of the Geneva pledges might be fulfilled before June.
According to the sources, it would be challenging to collect between $450 million and $700 million of the Geneva pledges before June.
According to the debt report published by the economic affairs ministry, the World Bank has already given $126 million to two flood-related projects.
According to the sources, the Asian Development Bank may contribute an additional $70 million to a flood recovery project.
In total, Pakistan got $7.3 billion in loans from abroad in just eight months, which is insufficient to keep the country solvent through June of this year.
The government has also stated that one of the reasons it has chosen not to organize elections for provincial assemblies is a shortage of funding as a result of IMF fiscal limits.
The IMF has disclaimed ever placing Pakistan under any restrictions that may jeopardize its adherence to its constitution.
According to the IMF, it set the overall budget targets and within them, there was financial room to reallocate funds or increase revenues in order to support constitutional activities.
According to the sources, using the IMF as a cover to further political goals could increase mistrust between Pakistan and the rest of the financial community.
