• Fresh programme inevitable given $25bn external financing needs in next fiscal year
• Aisha says lender now insists on actions, not words, as previous govt ‘reneged on promises’
• NA finance panel members protest as Ishaq Dar skips meetings
ISLAMABAD: A fresh IMF bailout programme has become inevitable as the lender remains adamant that Pakistan bridge the external financing gap of $6 billion for this fiscal year and reach an understanding on the next year’s budgetary framework before the current loan deal expires on June 30.
Informed sources said the government would be formally approaching the International Monetary Fund for a new programme early next fiscal year after completing the much-delayed ninth quarterly review on a positive note.
A new loan deal, they said, was important because the country would need more than $25bn in external financing during the next fiscal year, something that could not be raised from commercial banks and capital markets without an IMF umbrella.
That means the 10th and 11th reviews of the programme could not be completed before its expiry by the end of this month.
Minister of State for Finance and Revenue Dr Aisha Ghaus Pasha told a parliamentary panel on Thursday that during a recent contact between Prime Minister Shehbaz Sharif and IMF Managing Director Kristalina Georgieva, Pakistan was asked to arrange the $6bn fresh loans to bridge the financing gap until the end of this fiscal year, on June 30.
Testifying before the National Assembly’s Standing Committee on Finance and Revenue, Ms Pasha said Pakistan’s entire economic team also attended the virtual discussions.
She said the Pakistani side argued that external financing needs had been reduced by curtailing the current account deficit, austerity and import controls, and now the requirement was not $6bn which should be accepted by the IMF.
She recalled that the IMF had earlier sought an upfront commitment of half of the external needs of $6bn to reach a staff-level agreement. The authorities arranged those funds through $2bn from Saudi Arabia and $1bn from the United Arab Emirates, who also directly made confirmations to the IMF, she said.
As such, the authorities managed to secure about $4.5bn funding, including from other multilaterals like the World Bank by completing their prior actions for the Resilient Institutions for Sustainable Economy (RISE) for $450 million, co-financing of $250m from the Asian Infrastructure Investment Bank (AIIB) and some other inflows against Geneva pledges for flood rehabilitation.
During the period since Feb 9, when the two sides completed staff-level negotiations, Pakistan also repaid $3bn and earnestly believed the agreement with the IMF could address the uncertainty in the market, improve perceptions and unlock loans from commercial banks withheld due to stalled IMF funding. However, the lender has insisted that Pakistan meet the $6bn financing gap before a staff-level deal.
At this stage, the IMF mission asked for the government’s budget numbers, which were required under the 10th quarterly review and not the 9th review.
“Nevertheless, we agreed to share budgetary numbers and we have already shared those things with the Fund, although these were not required for the 9th review,” Ms Pasha said.
She linked IMF’s rigid stance to the previous government’s violation of commitments with the Fund. As a result, the IMF is now pushing for actions rather than words.
“Now the IMF managing director has asked us to share the budget details so that once prior actions are completed, the two sides could move towards a staff-level agreement,” she said.
The state minister said the budget strategy and framework had been shared with the lender and “we are now back with the IMF and talking regularly”.
The budget, she said, was broadly in line with IMF requirements, adding that structural reforms were long delayed by successive governments even though they could benefit the country and its people.
“Broadly with these (budget) numbers, we are hopeful of convincing them (IMF) for an agreement,” she said.
On a question about reports of alternative options of offering amnesty to foreign currency hoarders for arranging foreign exchange reserves, Dr Pasha said the government wasn’t considering such a plan and it was strongly committed to the IMF programme and looking forward to completing it.
She said the government had paid a high political cost in clearing the policy backlog of the previous government — by rationalising subsidies, increasing electricity and gas prices, imposing additional taxes and making the exchange rate flexible — and could not afford to give up.
That was why the IMF managing director and Prime Minister Sharif agreed that completing the 9th review was “in the interest of both sides”, Ms Pasha said, adding that unless these difficult reforms were accomplished, Pakistan could not move into the league of developed nations when it completes its 100 years of existence in 2047.
During the session on Thursday, MNAs protested the continuous absence of Finance Minister Ishaq Dar from the meetings of the parliamentary committee and pledged not to take up any government business or laws unless Mr Dar attends the meeting and briefs the panel.
They also criticised the government for not sharing the budget strategy paper with the standing committee, which they said violated the Public Finance Management Act that required the paper to be cleared by the National Assembly panel and uploaded on its website before April 15 every year.
They said it was ironic that budget details were being shared with the IMF but not with the parliament.
Dr Pasha said the budget strategy paper had been prepared, but the prime minister formed eight separate committees on power, agriculture, subsidies, industry, etc. and the recommendations of those committees had to be accommodated in that document.
She said these were extraordinary circumstances when the country was under an IMF programme and the government wanted the budget strategy paper to be consistent with the needs of both IMF and the public.
It would shortly be taken to the cabinet and also shared with the National Assembly panel on finance, she said.
Published in Dawn, June 2nd, 2023