Reaching a deal with the IMF for more money from a US$6.5bil (RM28bil) loan programme is crucial for Pakistan, which needs the funds to unlock more aid, avert a default and replenish foreign currency reserves that have fallen to less than US$3bil (RM13bil). — Reuters
ISLAMABAD: Pakistan and the International Monetary Fund (IMF) pledged to continue loan negotiations after failing to reach a deal during the lender’s visit, indicating no immediate reprieve for the South Asian nation as it spirals deeper into an economic crisis.
Reaching a deal with the IMF for more money from a US$6.5bil (RM28bil) loan programme is crucial for Pakistan, which needs the funds to unlock more aid, avert a default and replenish foreign currency reserves that have fallen to less than US$3bil (RM13bil).
IMF staff-level discussions have extended past a scheduled end date of Feb 9, and it’s now unclear when they will wrap up.
The IMF’s priorities include strengthening Pakistan’s financial position with permanent revenue measures, reducing untargeted subsidies and allowing the exchange rate to be market-determined.
The agency also seeks to ensure the viability of the energy sector, though Pakistani authorities have ruled out increasing electricity prices and have resisted raising gas prices for months.
“The timely and decisive implementation of these policies, along with resolute financial support from official partners, are critical for Pakistan to successfully regain macroeconomic stability and advance its sustainable development,” IMF staff said in a statement.
“Virtual discussions will continue in the coming days to finalise the implementation details of these policies.”
Pakistan is still hopeful it will seal a deal with the IMF. The government was scheduled to start virtual discussions yesterday after receiving an agreement draft last Friday, Finance Minister Ishaq Dar said at a briefing.
Officials plan to raise new revenues of 170 billion Pakistani rupees (RM2.7bil) and increase diesel prices, though the government has backed away from adding a new tax on fuel.
But signs of trouble persist. Following the IMF’s statement, US dollar bonds due in 2031 indicated a drop of nearly 4.2 US cents (18 sen), the most in more than four months, to 55.9 US cents (RM2.44) on the dollar last Friday.
Pakistan’s KSE-100 Index fell 1.7% at the close. The movement indicates a change in sentiment that had been upbeat.
“Investor optimism will be impacted until a staff-level agreement is reached,” said Mohammad Shoaib, chief executive officer at Al-Meezan Investment Management.
Still, Pakistan has made some progress in meeting IMF expectations.
Prime Minister Shehbaz Sharif’s government loosened its grip on the rupee and raised fuel prices last month, showing a determination to complete the IMF’s bailout plan after months of delay in implementing key measures.
The rupee slumped almost 15% in January and touched a record low this month against the US dollar.
“There is a certain level of resolve we have seen from the government, due to which we expect sooner or later Pakistan’s deal with the IMF will happen,” said Syed Atif Zafar, a chief executive officer at Uraan, a research house. “The expectation is that the deal is inevitable.”
Depleted resources have stranded thousands of containers of supplies at ports, pushing inflation to a 48-year high and forcing companies to shut factories due to a lack of inventory.
Elevated social and political risks compound the government’s difficulty in implementing reforms, including revenue-raising measures that would improve the country’s financial position and liquidity position, Moody’s Investors Service said in a statement.
“Government liquidity and external vulnerability risks are elevated, and there remain considerable risks around Pakistan’s ability to secure the required financing to fully meet its needs for the next few years,” said the statement.
Sharif’s remarks on Feb 3 that the IMF’s demands were “beyond imagination” show the dilemma that Pakistan faces.
The IMF requires a market-determined exchange rate, higher energy prices and a sustainable financial sector, all of which portend more hardship for a country that hasn’t recovered from last year’s devastating floods and endless political turmoil.
A suicide bombing last month killed at least 92 people.
Pakistan has a tumultuous track record with the IMF. Most of its previous bailouts, 13 since the late 1980s, weren’t completed. The government secured a US$1.1bil (RM4.8bil) in August as part of a US$6.5bil (RM28bil) package agreed upon in 2019.
But it has been halted multiple times because of Islamabad’s failure to meet loan conditions and disagreements over spending plans after the floods. — Bloomberg
