New IMF programme?

Published June 3, 2023

WITH the PTI chief effectively sidelined for now, the PML-N-led government is looking to provide some relief to the people and businesses before the next election. It has already cut petrol prices significantly and plans to present a relatively expansionary budget to revive its political fortunes.

Some things may not be possible because of strict IMF conditions. Hence, it has announced it will let the current IMF programme end this month, after seven months of inconclusive talks on the ninth programme review, with Finance Minister Ishaq Dar blowing hot and cold over Islamabad’s worsening ties with the Fund.

Reportedly, the PML-N would like to negotiate a fresh loan facility with the lender, probably after the polls. In between, it expects the IMF to approve the ninth review and release the $1.2bn tranche before the programme ends on June 30.

The tranche’s release is crucial to the government’s plans to provide relief to the public in the budget, secure other foreign funding and relax import restrictions to please the angry business community before the polls.

In order for that to happen, Mr Sharif recently held a virtual meeting with the IMF’s managing director to pave the way for the conclusion of the review and the release of funds. In this regard, the government has also shared its budget targets with the lender even though this was not required under the ninth review.

However, indications are that the Fund will not oblige and that the staff-level agreement — the talks for which were completed over three and a half months ago — won’t happen anytime soon.

Fund officials have made it quite clear that the agreement hinges on Pakistan’s ability to arrange fresh loans of $6bn to bridge this year’s gross financing gap.

The Fund is not ready to subscribe to Islamabad’s viewpoint that the significant reduction in the current account gap has cut financing requirements for the present year.

The hard time the IMF has given on the inconclusive ninth review is an indication that negotiations for a new funding programme will be even tougher. If the ninth review doesn’t come through, Pakistan’s foreign exchange reserves would deplete further in the run-up to the polls and the formation of a new government; also, its debt sustainability indicators will deteriorate.

In other words, a new government seeking a fresh IMF deal will be forced to agree to far more difficult conditions and pre-arrange significantly large gross foreign financing to get the dollars. That Pakistan needs the IMF programme to reverse its economic downturn and stay solvent cannot be overstated.

No bilateral, multilateral or commercial lender is likely to help us unless the IMF is on board. One hopes that the government’s planned relief for voters doesn’t further fracture Islamabad’s relations with the Fund.

Published in Dawn, June 3rd, 2023

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