Finance Minister Ishaq Dar said on Thursday that Pakistan’s negotiations with the International Monetary Fund (IMF) related to the completion of the ninth review of a $7 billion loan programme were near conclusion and the staff-level agreement with the global lender will be signed by next week.
The government is in a race against time to implement measures to reach an agreement with the IMF as the country has reserves barely enough for three weeks of essential imports, while hotly contested elections are due by November.
In a series of tweets today, the finance czar rubbished rumors regarding Pakistan defaulting.
Anti-Pakistan elements are spreading malicious rumors that Pakistan may default. This is not only completely false but also belie the facts. SBP forex reserves have been increasing and are almost
US $ 1 billion higher than four weeks ago despite making all external… 1/2
— Ishaq Dar (@MIshaqDar50) March 2, 2023
“Anti-Pakistan elements are spreading malicious rumors that Pakistan may default. This is not only completely false but also belies the facts,” he said.
Dar said that the State Bank of Pakistan’s (SBP) forex reserves had been increasing and were almost near $1 billion, “higher than four weeks ago despite making all external due payments on time”.
“Foreign commercial banks have started extending facilities to Pakistan. Our negotiations with IMF are about to conclude and we expect to sign Staff Level Agreement with IMF by next week. All economic indicators are slowly moving in the right direction,” he added.
The finance minister’s remarks come as the Pakistani rupee sank sharply by Rs18.74 against the dollar in the interbank market today. Analysts attributed the record drop — which is 7.04pc — to the government’s impasse with the global lender.
The agreement with the IMF on the completion of the ninth review of a $7bn loan programme — which has been delayed since late last year over a policy framework — would not only lead to a disbursement of $1.2bn but also unlock inflows from friendly countries.
The prerequisites by the lender are aimed at ensuring Pakistan shrinks its fiscal deficit ahead of its annual budget around June.
Pakistan has already taken most of the other prior actions, which included hikes in fuel and energy tariffs, the withdrawal of subsidies in export and power sectors, and generating more revenues through new taxation in a supplementary budget.
IMF ‘shifts goalposts’
However, a day earlier, senior officials told that the government was finding it increasingly difficult to convince the Fund to release a loan installment.
The IMF had changed interpretations of at least four prior actions ahead of reaching a staff-level agreement on the direly needed economic bailout. Sources had said that the authorities were extremely annoyed at the latest situation, describing it as ‘maltreatment’.
“We are members of the IMF, not beggars, or else our membership be discarded,” commented a disgruntled senior official.
Another official had even likened the situation to that in 1998 when Pakistan’s economic difficulties worsened in the wake of nuclear tests, and default seemed imminent.
As per the sources, authorities have secured $1.3bn inflows in three tranches from Chinese banks, on top of the $700 million that has already been received. This would flow in two equal installments of $500m and then $300m with a gap of a few days. Saudi Arabia and the United Arab Emirates would also be made available over $3bn.
The four items on the unfinished IMF loan program agenda include an early hike in the central bank’s interest rate to represent general inflation, exchange rate movement to cater for outflow to war-ravaged and sanction-hit Afghanistan, written assurances for external financing gap from friendly nations, and the continuation of Rs3.39 per unit financing cost surcharge on electricity consumers for coming years through the finance bill, rather than for four months already announced by the government.
Officials also suggest that all matters had been settled before the IMF mission concluded its visit to Pakistan on the night of Feb 9 and even a concluding statement from the Fund was supposed to report “comprehensive dialogue and positive outcome of the talks”, which got watered down during the approval process abroad, where some influential quarters were said to be “more political than politicians”.
Sources said the draft Memorandum of Economic and Fiscal Policies (MEFP) was first shared with Pakistan in February and had since been going through changes in agreed steps that Pakistan had already complied with by increasing gas and electricity prices and passing an Rs170bn mini-budget at a fast pace.
The prior actions are always set to be completed before the executive board meeting of the IMF for approval of quarterly review but this time this had been linked to the staff-level agreement.