ISLAMABAD: Pakistan will focus on meeting its external financing needs by speaking with foreign governments and lenders to draw foreign investment as well as seeking loan rollovers, Finance Minister Mohammad Aurangzeb said on Friday, as the government prepares to execute its new $7bn International Monetary Fund (IMF) agreement.
Pakistan and the IMF reached an agreement for the 37-month loan programme earlier this month.
Tough measures such as raising tax on agricultural incomes and lifting electricity prices have prompted concerns about poor and middle-class Pakistanis grappling with rising inflation and the prospect of higher taxes.
Pakistan has relied heavily on IMF programmes for years, at times nearing the brink of sovereign default and having to turn to countries such as the United Arab Emirates (UAE) and Saudi Arabia to provide it with financing to meet external financing targets set by the IMF.
Minister says looking to focus on direct investment, climate financing; expects loan rollovers to continue
The finance minister in an interview said that external financing continued to be an important component, though the government was seeking to focus on more sustainable forms such as direct investment and climate financing.
“I think in the existing situation we can expect those (loan) rollovers to continue to take place […] we have requested extension of maturities,” Mr Aurangzeb said.
Rollovers or disbursements on loans from Pakistan’s long-time allies Saudi Arabia, the UAE and China, in addition to financing from the IMF, have helped Pakistan meet its external financing needs in the past.
The IMF said the new Extended Fund Facility programme is subject to approval from its executive board and obtaining “timely confirmation of necessary financing assurances from Pakistan’s development and bilateral partners”.
Mr Aurangzeb said meeting the external financing gap was “very manageable and very doable”. He said Pakistan plans to expand its strategy beyond relying heavily on rollovers and towards foreign direct investment, including in the huge copper and gold Reko Diq mine in southern Pakistan.
The government was working on identifying “bankable and investable” projects for Saudi Arabia and the UAE, which announced interest in billions of dollars in investment in the country, he added.
“That is what’s going to lead to sustainability,” he said. “If we can’t get this executed in the next three years, we will not be able to get out of the ‘last’ programme.”
Pakistan has been plagued by boom-and-bust cycles for decades, leading to more than 20 IMF bailouts since 1958. It is currently the IMF’s fifth-largest debtor, owing $6.28 billion as of July 11 according to IMF data.
Mr Aurangzeb said the Reko Diq copper and gold mine project had drawn interest from the World Bank’s private investment arm, the International Finance Corporation (IFC), which had signalled it would invest a “large amount”.
He said that during an upcoming trip to China, Islamabad would discuss power sector structural reforms with Beijing that the IMF suggested. Beijing has set up over $20bn worth of planned energy projects in Pakistan.
Climate finance
Pakistan — one of the countries worst affected by climate change — has also agreed with the IMF to launch talks this year on financing under the Fund’s Resilience and Sustainability Trust (RST) to draw financing for projects related to climate change.
Huge floods in 2022 caused billions of dollars of damage to infrastructure and agriculture, besides claiming hundreds of lives.
“We will start the discussions around that during this calendar year, possibly at the time of the first review, which will be in October, around the annual meetings in Washington,” Mr Aurangzeb said, though he did not specify how much the government would request.
Having successfully completed the long-term EFF in 2017, the PML-N government believed the plan was underway to ensure Pakistan completed the current programme as well, despite mounting political pressure and the inflationary impact of IMF-suggested reforms.
The minister, the former head of Pakistan’s largest bank, also stressed the government planned to push through the privatisation of loss-making enterprises including national carrier Pakistan International Airlines.
Published in Dawn, July 20th, 2024
