IMF maintains 9th review projection for Pakistan’s external funding needs
The IMF’s resident representative has denied rumors that the organization is seeking $8 billion in new finance from Pakistan.
ISLAMABAD:
In its 9th review of Pakistan’s economic program, the International Monetary Fund (IMF) said Sunday that the amount of external financing needed to ensure that Pakistan stays current on its external commitments has not altered.
After a report in The Express Tribune claimed that the IMF had requested that Pakistan secure $8 billion in external financing to meet its needs beyond the 30-day term ending on June 30, Resident Representative Miss Esther Perez Ruiz issued a statement clarifying the organization’s position.
“There is no truth to reports that the IMF is asking Pakistan to raise $8 billion in fresh financing”, Perez stated.
The IMF has requested an additional $2 billion, as evidenced by internal Ministry of Finance documents.
According to documents obtained from the Finance Ministry, the idea of raising an additional $2 billion was brought up by the IMF following a meeting between Pakistan and the organization on April 12th.
The official documents further clarified that the additional $2 billion was requested “over and above $6 billion” to avoid misunderstandings.
However, the IMF official’s comments hint that the end-June financing deficit of $6 billion was sufficient to cover the $2 billion in demand.
According to Finance Minister Ishaq Dar, a $6 billion financing deficit was discovered as part of discussions between Pakistan and the IMF during the 9th programme review. Only $3 billion has been secured by Pakistan, thus far short of what is needed to restart the delayed bailout package.
The Saudis have pledged $2 billion and the UAE have pledged $1 billion in new loans.
The IMF will “continue to support Pakistan in the best possible way to secure sufficient financing by partners,” Esther said on Sunday. She also said that negotiations under the ninth review have not impacted the amount of funding needed to assist Pakistan’s implementation efforts and guarantee that Pakistan maintains current on external payments.
Pakistani officials have stated that the $2 billion was requested for a time period after June 30th, when the IMF programme is set to expire.
According to the official documents, Pakistan is still dedicated to the agreement struck (for arranging $6 billion) notwithstanding the additional $2 billion in financing. Officials from the Ministry of Finance argued in these papers that the IMF should cut the demand from $6 billion to $5 billion because the current account deficit has shrunk.
There is a basis for cutting Gross Financing Need from $6 billion to $5 billion, according to these papers, because the country’s current account deficit was only $3.8 billion through the first eight months.
After a surplus was reported in March due to a sharp decrease in imports, the deficit shrank to $3.4 billion, a record low.
For related reading, see report says IMF would ‘maintain cooperation’ with Pakistan despite political unrest.
The Finance Ministry papers showed that the current account deficit “is unlikely to exceed $6 billion,” when the IMF had predicted $8 billion.
According to the sources, the International Monetary Fund is concerned about the import limits as well. Officials in the Ministry of Finance, however, believed that import compression resulted from the economy’s slowdown and the increased price elasticity of demand caused by the devaluation of the currency.
Dar reminded the IMF’s executive director on Monday that the additional $3 billion can only be arranged after the IMF announces staff-level agreement and the board approves the ninth review and the $1.2 billion tranche.
A few days ago, an IMF spokeswoman indicated that in order for Pakistan to fix an acute balance of payments crisis, the country would need to obtain promises of “significant additional financing” from the IMF.
Even without an IMF program, Pakistan, Dar vowed on Thursday, will not default on any foreign commitment. He claimed that all of the IMF’s pre-agreement conditions had been met by Pakistan and that the lender should now sign the agreement.
