WASHINGTON: If Pakistan and the International Monetary Fund (IMF) manage to reach a standby agreement on financial support measures, it could provide the near-term financing required to get the country through the election period, an economist associated with the Atlantic Council told Dawn on Wednesday.

“It seems that while the current programme will lapse on June 30, the IMF and Pakistan are making progress towards a standby agreement,” said Uzair Younus, adding that once elections are held, a new government will have to negotiate a fresh programme with the lender.

While the country’s financial managers may be able to finalise a staff-level agreement (SLA) following IMF-approved changes to the federal budget for FY2024, diplomatic sources in Washington said the funds would not be released until the IMF board’s approval, which can take anything from two weeks to two months.

“If the government was ultimately going to accept IMF’s demands, why did they delay it?” Mr Younus asked in an online discussion on Islamabad’s efforts to revive the bailout package. “Doing it earlier would have been good for the country,” he said.

Economist says IMF would negotiate a fresh programme with new government after general polls are held

Sources said it was not uncommon for staff-level agreements to be reached, but the board to hold back approval for months. “This happens when there are financing or debt-related problems, like in Lebanon or Sri Lanka. I would put Pakistan in this category too,” one of the sources privy to discussions between Pakistan and the IMF added.

The source also cautioned that people in Pakistan were “getting ahead of themselves”, but confirmed that progress was afoot.

“The final agreement will be good for Pakistan, but it will not be the Eidi that some Pakistani officials are hoping for,” the source said, adding that while a staff-level agreement was possible at short notice, it may not materialise by June 30.

Pakistan has been trying to persuade the IMF to release $1.1 billion from the $6.2 billion package that has been delayed since November over issues related to fiscal policy adjustments.

These funds, as well as the IMF’s endorsement, are critical for the country to avert defaulting on external payment obligations.

“Over the past few days, Pakistani authorities have taken decisive measures to bring policies more in line with the economic reform programme supported by the IMF,” the lender’s mission chief for Pakistan, Nathan Porter, said in a statement on Tuesday, explaining why the Fund was now willing to accommodate Islamabad’s request.

The Fund had earlier raised objections to Pakistan’s budgetary spending plan, saying it was insufficient to meet the conditions of the bailout.

Pakistan argues that the IMF has recently released emergency funds for Ukraine and therefore there’s a precedent to do so. But financial analysts that Dawn spoke to say that the two situations were not comparable.

Another possibility, however, is to extend the June 30 deadline for a month or so to allow Pakistan and the IMF to complete the process and release the funds.

Published in Dawn, June 29th, 2023

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