IMF has demands additional budget and other information before launching virtual negotiations with Islamabad, as it needs $10 billion in foreign loans to avoid default.
According to a government official, $8-$10 billion in loan repayments and external funding to manage current account deficits cannot be raised without reviving the IMF programme. Currently, senior Finance Division officials are preparing to reply to the IMF’s request for additional information.
To eliminate gas sector circular debt, the government will raise gas tariffs and change slabs before the federal cabinet meeting to meet IMF requirements.
Previously, Pakistan described the 9th review of the $7 billion Extended Fund Facility (EFF). IMF has requested more budgetary information, which will be provided shortly.
To avoid default, Pakistan must borrow $10 billion between February and June. After stalling since November, the government has sent an SOS to the IMF to restart the program. The economy has been in decline since then.
In its latest monetary policy statement, the State Bank of Pakistan (SBP) acknowledged that near-term challenges in the external sector have increased despite the policy-induced contraction in the current account deficit. According to SBP data, “the fresh loan requirements of $8 to $10 billion cannot be met without the blessings of the revival of the IMF program.”
Official data showed that Pakistan had to pay $23 billion in the current fiscal year 2022-23, $15 billion of which was external debt servicing. In the first half of the current fiscal year, the government repaid $9 billion and rolled over $6 billion of its $15 billion debt.
The current fiscal year’s second half (Jan-June) requires $8 billion in repayment. The bilateral creditor has promised a $3 billion rollover in March 2023. The official noted that $5 billion in external debt repayment has gone unpaid, increasing the country’s risk.
The government will need $5 billion to finance the $8 billion to $9 billion Current Account Deficit (CAD) in the remaining months. The CAD was $3.7 billion in the first half (July-Dec) of the current fiscal year and is expected to rise by $5 billion in the second half (Jan-June).
Official sources said Islamabad needs $10 billion in fresh loans to cover external debt servicing and CAD needs.
“The 9th review will improve external sector outlook,” SBP stated.
It added that global economic prospects remain subdued amid recession fears. This eases global commodity prices and allows central banks to slow their tightening.
Without reviving the IMF program, $8-10 billion is unobtainable. The government is attempting a last-ditch IMF program revival. The government has shared the negotiation details and is waiting for the IMF’s response to hold the next round.