THE waiting period seems to be getting longer. The fact that the IMF Board’s calendar of engagements for the first week of September does not feature Pakistan means that the approval for the new $7bn deal reached in July is unlikely to come before the end of next month. Many fear it could be delayed beyond September, despite Finance Minister Muhammad Aurangzeb’s recent reassurance that the Fund’s approval should be obtained by next month. But, then, he had earlier also predicted that the IMF would approve the deal this month.

The delay appears to have been caused by Pakistan’s failure to get debt relief from its major bilateral creditors, especially China, and to arrange $2bn in fresh loans to cover the gross external financing gap for the present fiscal. When the staff-level agreement was signed with the IMF, the minister had called the financing gap ‘manageable’. And when he went to Beijing to secure its commitment for another rollover of $4bn debt, he was confident of returning home with the cheque. In fact, he had also expected an agreement with China on re-profiling the nation’s energy debt of $15bn.

It was only upon his return that we learnt that the IMF’s approval of the new loan was tied to firm commitments from China, Saudi Arabia and the UAE that they would roll over their combined debt of $12bn. Later, he informed us that these friendly nations had accepted Pakistan’s debt relief request. However, they do not appear to have conveyed that to the Board.

The fact that the government has not arranged for new loans to fill the ‘manageable’ external financing gap was made public only when the loan approval was delayed, with Islamabad approaching Riyadh for an oil facility of $1.2bn and Middle Eastern commercial banks for $800m to cover the gap.

On Tuesday, the State Bank governor said that Pakistan plans to raise up to $4bn from banks by the next fiscal to plug the gap. According to him, Pakistan is in the ‘advanced stages’ of securing $2bn in additional external financing required for IMF approval. Pakistan will eventually get the required bilateral debt relief and IMF dollars.

Moody’s decision to upgrade Pakistan’s long-term issuer rating, following a similar announcement by Fitch, also indicates confidence in the approval of the IMF package. Yet the delay is now causing anxiety in the markets — especially because we still do not know whether Chinese energy debt relief is one of the IMF conditions or if the government is pursuing this separately.

Much of the worry over the loan stems from a lack of transparency regarding the cause of delay rather than the delay itself. A little less opaqueness would go a long way in keeping the markets calmer till things fall into place.

Published in Dawn, August 29th, 2024