The Ninth Review must be completed and $1.2 billion released from the IMF, or a new Standby Arrangement (SBA) of $2.5 billion for a shorter term of six months for Pakistan until the end of December 2023 must be made. These are the only two choices that remain in light of the impending deadline.
If a new rescue agreement was reached under the SBA, Pakistan may use all $2.5 billion of its allotted quota before it expired if the Fund failed to complete the Ninth Review and release a $1.2 billion tranche by the end of June 2023.
Pakistan’s request to extend the duration of the current Extended Fund Facility (EFF) past June 2023 was already turned down by the IMF.
Pakistan also asked the IMF to increase the size of the new SBA to $3.5 billion, but the IMF declined. Nevertheless, plans are currently being made to accept one of the two options.
Pakistan and IMF
In a related development, IMF Mission Chief Nathan Porter said, “Over the past few days, the Pakistani authorities have taken decisive measures to bring policies more in line with the economic reform program supported by the IMF.
These include the passage of a budget by the parliament that broadens the tax base while opening up space for higher social and development spending as well as steps towards improving the functioning of the foreign exchange market and tightening monetary policy to reduce inflationary and balance of payment pressures that affect particularly the more vulnerable.
The IMF team continues discussions with Pakistani authorities with the aim of quickly reaching an agreement on financial support from the IMF.”
This announcement has reduced the first possibility of resuming the $6.7 billion Extended Fund Facility program.
In order to avoid a balance of payment crisis, Pakistan and the IMF must now investigate the second option for establishing the new transitory program under the standby arrangement for the following six months.
If the IMF chooses to launch a new SBA program for six to seven months, ending on December 23 or January 24, it will assist Islamabad in carrying out the upcoming political transition through general elections.
Whoever wins the elections would then have one to two months to negotiate a new three-year bailout package.
Pakistan has also asked that the SBA program’s front-loaded $1 billion tranche to be paid out, with the remaining $1.5 billion perhaps following two assessments.
PM Shehbaz Sharif and IMF MD Conversation on Bailout
“Prime Minister Shehbaz Sharif made a telephonic call to the IMF MD at 4.30 am on Tuesday morning. Now only two options are under consideration i.e. either to accomplish the Ninth Review and release of $1.2 billion tranche, so the remaining due amount will lapse.
The second option is to make a fresh SBA program for the next six months period with the provision of $1 billion front-loaded disbursement,” a top official of the government confided to a select group of reporters here on Tuesday.
In either case, Pakistan would ask the IMF to sign a SLA that would last until June 30, 2023. In order to ensure that Pakistan’s quota is completely safeguarded, Islamabad can then wait a few more days until the IMF’s Executive Board meeting in July 2023 to approve a new Standby Arrangement.
According to a senior official, Pakistan proposed to the IMF a new Standby Arrangement for the following six to seven months with a front-loaded $1 billion distribution because Islamabad had complied with all IMF requirements.
“The Staff Level Agreement will have to be struck till the end of June 2023 because Islamabad implemented all the conditions,” they said.
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