ISLAMABAD: Pakistan has asked the International Monetary Fund (IMF) to relax conditionalities under the $6 billion Extended Fund Facility (EFF) relating to the Financial Action Task Force (FATF) and issuance of sovereign guarantees to help raise over $4bn from domestic and international markets.
Pakistan has budgeted about $3bn bonds (about Rs450bn) — Islamic Sukuk and Eurobond — to be launched in the international capital markets during the current fiscal year to meet targets under the EFF for foreign inflows. Separately, the government has planned to raise about Rs200bn from domestic Islamic banks for the power sector to scale down circular debt.
“We are dying to complete these transactions at the earliest,” a senior official told Dawn, adding that the capital market conditions were never as conducive as at present. He said the return on bonds had plummeted to almost zero in the international capital markets and investors were finding it hard to secure profits on secured papers. “This provides an ideal opportunity for Pakistan to tap international capital markets to secure sovereign bonds at a minimal interest rate,” the official said.
Pakistan had last tapped the international capital markets in 2016 at about 8.25 per cent mark-up when average yield hovered between 3pc and 5pc for other countries.
Likewise, the government had negotiated Islamic financing worth around Rs200bn for the power sector from domestic banks in recent months on top of another Rs200bn secured earlier this year.
Asks Fund to allow issuance of sovereign guarantees to raise over $4bn through bonds
But all these transactions are handicapped by the IMF conditionalities as part of the 39-month EFF. One of the structural benchmarks under the IMF programme is for Pakistan to “adopt measures to strengthen the effectiveness of AML/CFT (anti-money laundering/combating the financing of terrorism) framework to support the country’s efforts to exit the FATF list of jurisdictions with serious deficiencies” by the end of October 2019.
Likewise, one of the six performance criteria under the IMF programme for Pakistan is to have a “ceiling on the amount of government guarantees” to the extent of Rs1.6 trillion throughout the current year i.e. until end-June 2020.
The official said the finance ministry had already taken up the matter of separating the FATF from the IMF-supported economic programme on the sidelines of recent IMF/World Bank meetings in Washington. The Pakistani delegation, led by Adviser to the Prime Minister on Finance and Revenue Dr Hafeez Shaikh and comprising State Bank Governor Dr Reza Baqir and Finance Secretary Naveed Kamran Baloch, had also met the management and governors of the IMF.
Officials said the authorities had argued that the FATF had a very wide scope, at times of geo-political nature, having no direct link to the economic support package which should be dealt purely on the basis of financial and monetary policies.
Another official said Pakistan was considering launching at least one of the two bonds — Islamic Sukuk or Eurobond — before the end of December this year and complete the budgeted $3bn target before June next year.
A senior official said Pakistan had achieved almost all the targets for the first quarterly review and achieved about Rs9bn saving in current expenditures of the government. The size of sovereign guarantees stood at Rs1.6tr as of end-June 2019 against Rs1.3tr at the end of December 2018.
Under the IMF programme, the guarantees should remain frozen at Rs1.6tr as performance criteria until December and remain so as indicative target until end-June 2020.
Pakistan now wants this limit to be removed so as to go for the launch of domestic and international bonds which are not possible without sovereign guarantees.
Sources said the IMF was also insisting on further electricity tariff adjustments to the extent of 10pc in two phases — in January and March next year — and the National Electric Power Regulatory Authority was being asked to do the needful at the earliest.
An IMF team led by Mission Chief to Pakistan Ernesto Ramirez-Rigo is currently in Pakistan for first review under the $6bn bailout package and will wind up the visit by Nov 7. The successful completion of the review would enable Pakistan to draw another $453 million from the Fund in the first part of December this year, taking the total amount to almost $1.44bn.
The IMF had in July this year made an upfront disbursement of $991m on completion of all prior-actions committed by Pakistan before signing the Fund programme.
Published in Dawn, October 31st, 2019