Out of the whole $2 billion committed, a Chinese bank has assured that it will deliver another refinanced $500 million loan over the next few days, bringing the total amount of commercial loans to $1.7 billion.
Before moving towards negotiating a staff-level agreement with the IMF, the Pakistani authorities are scrambling from pillar to post to obtain complete confirmation from favorable donor nations and multilateral creditors.
Pakistan was required to obtain the refinancing of commercial loans as well as a rollover on deposits from China during the program duration, which is set to end in June 2023, as per an unwritten agreement with the IMF.
“Another $500 million commercial loan is coming from a Chinese bank,” a top official of the Finance Division confirmed on Wednesday and added that it would be done soon.
Chinese Bank Promised to Refinance
Beijing has promised to re-finance another $500 million in loans in the coming days, adding to the $1.2 billion in commercial loans that Chinese banks have already refinanced in recent weeks.
It is important to note that Pakistan had also asked for permission to offer a rollover on the $2 billion Chinese SAFE deposit during the current month.
The $3 billion deposit, which Saudi Arabia had been holding at the State Bank of Pakistan (SBP), has already been extended by one year for the South Asian nation affected by floods.
All of these steps—the refinancing of commercial loans and rollovers on SAFE deposits—are necessary before the IMF and Pakistani side can proceed with signing a staff-level agreement.
The Kingdom of Saudi Arabia, the UAE, and Qatar, as well as the World Bank and the AIIB, are now eagerly awaiting assurance from Pakistani authorities that their $6 billion in external financing needs will be met through the end of June 2023.
It is very difficult for the State Bank of Pakistan to increase its foreign exchange reserves up to $8–10 billion by the end of June 2023, even though the staff had projected them at $16–billion in August 2022, after finishing the seventh and eighth reviews under the $6.5 billion Extended Fund Facility.
As a result, the guarantees for securing external financing are crucial for the sustainability of the IMF program.
When there haven’t been any external shocks to Pakistan’s economy, it will be very challenging for the IMF staff to defend a 50% fall in the foreign exchange reserves held by the SBP.
Authorities in Pakistan countered those numerous areas of their country had been affected by flash floods, which had cost the economy $30 billion.
One piece of positive news for Pakistan’s economy is that Brent crude is now trading at $74.39 per barrel and WTI is now trading at $68.16.
In the meantime, the IMF launched covertly “Inclusive growth in the MENA region” here at NUST on Wednesday.
Presentations by IMF officials who argued that wherever state-owned enterprises (SOEs) had a significant footprint, it resulted in the crowding out of the private sector were made in the document.
The IMF received assurances from Pakistan’s budget makers that they would create gender-based budgets for the following fiscal year.
The Public Sector Development Program (PSDP), the federal government’s development budget, was cut in half for the current fiscal year in response to the IMF’s demand to reduce the budget deficit target, practically under the IMF’s strict scrutiny at a time when it is focusing on inclusive growth in its recently released books.
The CPI-based and SPI-based inflation rates have reached historically high levels of 31.5 percent per month and 42.3 percent every week in order to meet the IMF’s criteria.
To read our blog on “Pakistan asks China to renew loans worth $6.3 billion,” click here.
