© Reuters. A shopkeeper looks at a television screen showing Pakistan Finance Minister Ishaq Dar presenting the budget for fiscal year 2023/24 to parliament in Islamabad, at a store in Karachi, Pakistan, June 9, 2023 REUTERS/Akhtar Soomro/File Photo
By Ariba Shahid
KARACHI, Pakistan (Reuters) – The International Monetary Fund has reached a staff-level agreement with Pakistan for a larger-than-expected $3 billion Contingency Agreement (SBA), a last-minute rescue package for the country. The country is facing an acute balance-payment crisis
Islamabad is racing against time to unlock $1.1 billion according to the 9th IMF review of the $6.5 billion Expansion Fund agreed to in 2019. The program expires on March 10. June 30.
Here’s some information on the importance of freeing up funds for the cash-strapped South Asian nation of 230 million and the challenges it faces:
WHAT DOES PAKISTAN BE?
The nine-month SBA will disburse nearly $3 billion, or 111% of Pakistan’s IMF quota, the lender said. The deal is subject to approval by the IMF Executive Board, which is expected to review the request in mid-July.
Such approvals are usually granted after an employee-level agreement has been made.
The Pakistani government was expecting about $2.5 billion from the IMF, Reuters reported.
PROCEDURE
Pakistan had previously removed eight of the 11 listed program reviews, with a ninth pending as of last November. The delay has been the longest since at least 2008.
The ninth review has stalled due to differences between the fund and Islamabad on policy actions, including external financing needs and budgets that meet program goals.
RECOVERY CONDITIONS
The initial draft of the 2023-2024 budget presented to parliament earlier this month fell short of IMF expectations but was hastily revised to introduce new taxes and spending cuts.
The country’s central bank also raised its benchmark interest rate by 100 basis points in an emergency meeting on Monday, just two weeks after leaving rates unchanged in a scheduled meeting.
FINANCIAL ERROR
The government has set aside $2.5 billion in external proceeds from the IMF in the federal budget for fiscal year 24.
Pakistan needs up to $22 billion to repay its foreign debt, pay interest and finance its current account for fiscal year 24. Reserves, at $3.5 billion, are at a critical, sufficient level. to cover the controlled import for one month.
Pakistan’s Credit Rating Affects Due to Macroeconomic Uncertainty: Three major rating agencies recently downgraded Pakistan’s rating – Standard & Poor’s Rating for Pakistan at CCC+, Moody’s (NYSE:) at Caa3 and Fitch at CCC-.
SIDE BENEFITS
A successful deal with the IMF could also help free up credit from other financiers who are looking for a healthy bill from the IMF for the ailing $350 billion economy. This includes raising money from the private market.
The country has received $3 billion in financial commitments from friendly nations Saudi Arabia and the United Arab Emirates, while China has allowed debt reinvestment due.
General elections are due in November and the latest deal could boost Prime Minister Shehbaz Sharif’s government.
