• UAE promises $1bn to prop up country’s forex reserves
• China releases $300m, part of last tranche of a $1.3bn rollover loan

ISLAMABAD: Finance Minister Ishaq Dar on Friday announced financial support from the United Arab Emirates and China totalling $1.3 billion, giving the ailing economy a shot in the arm as it seeks to meet conditions to unlock IMF funding.

He said the UAE had promised $1bn to prop up Pakistan’s forex reserves — which at their current level of $4.04bn can barely pay for four weeks of controlled imports. The confirmation from the emirates removes a key hurdle to securing the much-awaited bailout tranche from the International Monetary Fund.

Besides, China on Friday was set to release $300 million to Pakistan — the last tranche of a $1.3bn rollover loan, he said.

“UAE authorities have confirmed to IMF for their bilateral support of US $ One billion to Pakistan,” Mr Dar tweeted, adding that the State Bank of Pakistan was now preparing the documentation to receive the deposit.

Officials said the IMF had committed to declaring a staff-level agreement once Pakistan secures half of the $6bn external financing gap for the current fiscal year through bilateral funding that would unlock flows from other multilateral lenders, including programme loans from the World Bank and the IMF itself, besides some loans from commercial banks held up for lack of IMF umbrella.

Pakistan’s external debt declined by about $4.5bn during the current fiscal year, as foreign commercial banks did not roll over their maturing loans because of the IMF impasse, although such loan extensions had been almost a regular feature.

With the last week’s confirmation from Saudi Arabia for $2bn and now $1bn from the UAE, that milestone is reported to have been met. The state minister for finance, Dr Aisha Ghaus Pasha, told a parliamentary panel last week that the confirmation of support from the UAE was the last hurdle to signing the staff-level agreement with the IMF.

Reuters reported that Pakistan’s dollar-denominated government bonds rose by more than two cents to the highest level in a month on Friday after the UAE’s confirmation of financial support. The dollar-denominated 2024 maturing bond rose by 2.25 cents on the dollar to 48.25.

Chinese rollover

Mr Dar also announced on Friday that $1.3bn rollover from the Industrial and Commercial Bank of China (ICBC) had been completed on disbursement of the third and last tranche of $300m.

The ICBC had already provided two instalments of $500m each in the first and third weeks of last month. But this only maintained a Chinese loan portfolio that runs into more than $27bn — the highest single source of external debt.

The external financing gap had been hampering the signing of a staff-level agreement for more than two months in completing the ninth review of the IMF loan programme that has been in limbo since October. The agreement is to be followed by a meeting of the IMF’s executive board for disbursing about $1.2bn.

Pakistan signed a $6.5bn bailout package with the IMF in 2019, but has repeatedly reneged on conditions and so far just $3bn has been released.

Earlier this week, Finance Minister Dar had separate virtual talks with IMF’s deputy managing director and the director for its Middle East and Central Asia department to push for a date for signing the agreement.

While the Fund had been tight-lipped about these engagements, the Ministry of Finance had claimed to have been assured that the staff-level agreement “will be signed soon followed by the IMF board’s approval”.

The government has already met other IMF conditions, including Rs170bn additional taxes for the remaining fiscal year and Rs500bn through the next year, over 300 basis-point increase in the central bank’s policy rate to a record 21pc, unprecedented hike in electricity rates including through permanent surcharge on honest consumers to fill the gap of mismanagement and governance crisis, up to 124pc increase in gas rates, and complete market-based exchange rates.

On successful completion, Pakistan would be entitled to 894 statutory drawing rights (SDRs) of the IMF with a calculated value of $1.2bn.

The tranche has been held since October because of the government’s reluctance to allow free movement of the exchange rate, increase in the interest rate and full-cost recovery of power supply through additional surcharges and other adjustments to generate more than Rs800bn in less than two years.

However, the prevailing political and judicial crises continue to cast shadows over the macroeconomic fundamentals and confidence of the external creditors, bond holders and investors.

Published in Dawn, April 15th, 2023