KARACHI: The International Monetary Fund (IMF) on Friday agreed to a Staff Level Agreement (SLA) on a $3 billion Standby Arrangement (SBA) with Pakistan, the last for the country. There is a rescue package of moments. Acute balance of payments crisis.
Islamabad was racing against time to unlock $1.1 billion under the IMF’s ninth review of the $6.5 billion Extended Fund Facility (EFF) in 2019. The program was scheduled to expire on June 30 (today).
Here are some facts about the importance and challenges of unlocking funds for a cash-strapped country of 230 million people.
What IMF will give Pakistan?
“The nine-month SBA will release about $3 billion, or 111% of Pakistan’s IMF quota,” the lender said.
“The agreement is subject to approval by the IMF’s Executive Board, which will consider the application by mid-July,” it said.
Such approval is usually given after a deal is made at the staff level.
The government of Pakistan expected about $2.5 billion from the IMF.
Delay in IMF programme
Pakistan had earlier cleared eight reviews out of 11 listed programs, while the ninth review was pending since November last year. The delay was already the longest since at least 2008.
The ninth review was stalled by disagreements between the Fund and Islamabad over policy initiatives, including external financing requirements and the budget to meet program goals.
Tough decisions to please IMF
An initial draft of the 2023-24 budget tabled in parliament earlier this month failed to meet IMF expectations but was hastily revised to introduce new tax and spending cuts.
The country’s central bank also hiked the key rate by 100 basis points in an emergency meeting on Monday, leaving rates unchanged at a scheduled meeting barely two weeks later.
Macroeconomic flaws
The government has earmarked $2.5 billion for external borrowing from the IMF in its FY24 federal budget.
Pakistan needs more than $22 billion for FY24 to repay external debt, pay interest and finance its current account. Reserves of $3.5 billion are at a critical level, barely enough to cover a month’s worth of controlled imports.
Pakistan’s credit rating has been affected by macroeconomic uncertainty: three major rating agencies have recently downgraded Pakistan — Standard & Poor’s rating for Pakistan is CCC+, Moody’s Caa3 and Fitch CCC.
Benefits of IMF deal
A successful deal with the IMF could also help unlock credit for other financiers seeking a clean bill of health from the IMF for the ailing $350 billion economy. This includes raising money from the private market.
The country has received $3 billion in financial commitments from friends Saudi Arabia and the United Arab Emirates, while China has given rollovers on its debt repayments.
General elections are due by November and the latest deal could bolster Prime Minister Shahbaz Sharif’s government.
