Pakistan set to clear IMF review, bridge external financing gap— financial experts

November 10, 2023 12:55 pm

ISLAMABAD: Pakistani economists and financial experts said on Thursday that the South Asian country would be able to successfully bridge its $6.5 billion external financing gap and successfully clear the International Monetary Fund’s (IMF) review for a second loan tranche.

In July, the IMF approved a nine-month standby arrangement for Pakistan that amounted to $3 billion to support the country’s economic stabilization program and disbursed $1.2 billion as the first loan tranche. The development took place at a time when Pakistan was struggling to bridge an external financing gap to avert a sovereign debt default.

An IMF mission kicked off its review for the second loan tranche, which is expected to continue till Dec.15, last week. A successful review would unlock $710 million for the South Asian country in December.

“At the moment, all is set for clearance of this IMF review for the second tranche,” Dr. Vaqar Ahmed, senior economist and joint executive director of the Sustainable Development Policy Institute (SDPI) in Islamabad, told Arab News.

“But the government will have to ensure fiscal discipline for the next review in February to complete the program.”

Ahmed said the government was facing an external financing gap of $6.5 billion which it is aiming to bridge by convincing “friendly countries” such as Saudi Arabia, UAE and China to rollover their loans.

He said the IMF has also asked the government to expedite the process of privatizing Pakistan’s national airline and other loss-making state-owned enterprises to generate funds.

Ahmed said the budget deficit had recorded a “little increase” due to the government’s borrowing, adding that the IMF would want an assurance from Pakistan that it would enhance its revenue collection for the fiscal year ending June 2024.

He said the IMF wanted to negotiate Pakistan’s next loan program with an elected government, with polls scheduled to be held on Feb. 8.

“If timely elections are not held, pressure on the rupee will increase,” Ahmed warned.

Ali Nawaz, economist and chief executive officer of Chase Securities, a securities brokerage company in Pakistan, said the ongoing IMF review would conclude smoothly as Pakistan has met all its targets for the first review.

Nawaz said the lender would provide the future course of action for the South Asian country to take its economy on the path to sustainable recovery.

“Pakistan will face challenges to meet the external financing gap in the range of $5bn to $6bn,” Nawaz told Arab News, adding that Pakistan’s economy was “on the right path” to raise funds from multilateral and bilateral partners.

Ahsan Mehanti, managing director of Arif Habib Commodities, a leading global commodities investor, trader, broker, and investment portfolio firm, said Pakistan’s economic markets were performing well which meant the country would easily clear the IMF review.

“External financing is an issue but the government has assurances of investments in multiple sectors from Saudi Arabia, UAE, Qatar and China to satisfy IMF’s requirements,” Mehanti told Arab News.

Senator Dilawar Khan, a member of the Senate’s finance committee, said the government’s economic team was engaged with the IMF for the second loan tranche. He said the external financing gap would be “easily bridged.”

“Our authorities have effectively stopped smuggling of dollars from Pakistan to Afghanistan through administrative and policy measures,” Khan told Arab News. “This would help us bridge our external financing gap.”

He said Pakistan’s caretaker finance minister and central bank governor had briefed members of the finance committee that the economic targets mutually agreed by the IMF and Pakistan have been fulfilled.