Tag: Economic Recovery

  • IMF willing to work with prolonged caretaker setup for SBA programme success

    IMF willing to work with prolonged caretaker setup for SBA programme success

    The International Monetary Fund (IMF) is reportedly willing to collaborate with a prolonged caretaker government in Pakistan to wrap up the $3 billion Standby Arrangement (SBA) programme, offering relief for the country’s economic challenges. 

    The ongoing SBA programme, set to conclude around March–April 2024, has garnered support from the IMF for this approach.

    Pakistan has informed the IMF about the possibility of extending the caretaker government’s term after the approval of the 7th Population and Housing Census. This change pushes the next elections to the first quarter of 2024 instead of the anticipated 2023 date.

    Candidates for crucial ministries, like finance, include Sultana Allana, Dr Ashfaque Hassan Khan, and Tariq Bajwa. For other economic portfolios, Muhammad Mian Soomro and Ijaz Gohar are being considered.

    Former FBR chairman Shabbar Zaidi declined a role in the interim setup due to personal reasons.

    In scenarios where Jalil Abbas Jilani or Dr Abdul Hafeez Shaikh become caretaker premiers, potential finance minister candidates shift. 

    Outgoing finance minister Ishaq Dar aims for a team member to secure a significant role.

    Ultimately, the decision rests on the appointment of the PM’s top official.

  • Pakistan successfully secures final IMF approval for $3 billion bailout

    Pakistan successfully secures final IMF approval for $3 billion bailout

    The International Monetary Fund (IMF) has officially granted approval to Pakistan for a 9-month Stand-By Arrangement (SBA) amounting to approximately $3 billion. This decision comes shortly after reaching a staff-level agreement with the country.

    In a statement, the IMF announced, “Today, the Executive Board of the International Monetary Fund (IMF) approved a 9-month Stand-By Arrangement (SBA) for Pakistan for an amount of SDR2,250 million (about $3 billion, or 111 percent of quota) to support the authorities’ economic stabilization program.”

    Earlier on the same day, Finance Minister Ishaq Dar confirmed that Pakistan had received $1 billion from the United Arab Emirates (UAE) as part of their financial commitment to assist Pakistan in securing the IMF bailout package. During a televised media address, the finance minister stated, “The UAE has deposited the amount into the State Bank account.”

    Additionally, Saudi Arabia had previously deposited $2 billion in the State Bank of Pakistan (SBP) account, fulfilling the IMF’s condition to bridge the external financing gap and bolster the country’s foreign reserves. This contribution aims to support the economic stability of Pakistan.

    Pakistan had signed a short-term IMF deal on June 30, under which the country was set to receive $3 billion over nine months, pending approval from the IMF’s board. With the Executive Board’s approval, an immediate disbursement of SDR894 million (approximately $1.2 billion) is authorised, as stated by the IMF.

    The remaining funds will be disbursed in phases throughout the duration of the programme, subject to two quarterly reviews, according to the IMF’s statement. The IMF acknowledges that Pakistan is currently facing a challenging economic situation due to external difficulties, devastating floods, and policy missteps, resulting in significant fiscal and external deficits, rising inflation, and depleted reserve buffers in the fiscal year 2023.

    The IMF sees the new SBA-supported programme as a means to address both domestic and external imbalances and provide a framework for financial support from multilateral and bilateral partners. Pakistan’s successful acquisition of the IMF bailout package was contingent upon implementing difficult economic measures, such as interest rate hikes and tax increases, to fulfill the IMF’s conditions.

  • Pakistan Stock Exchange rises above 44,000 points after 14 months

    Pakistan Stock Exchange rises above 44,000 points after 14 months

    On Thursday, the Pakistan Stock Exchange (PSX) benchmark index surpassed the 44,000 milestone after 14 months, experiencing a substantial surge of over 600 points after a two-day decline. The PSX website reported the KSE-100 index closing at 44,178.85 points, reflecting a commendable rise of 1.44 per cent or 626.02 points.

    Market analysts attribute this rally to several pivotal factors. Firstly, the standby agreement reached with the International Monetary Fund (IMF) played a crucial role in bolstering investor confidence. This agreement significantly alleviated uncertainties, particularly the risk of default, providing Pakistan with the opportunity to focus on its fiscal policies.

    Additionally, the disbursement of payments to independent power producers (IPP) contributed to the positive momentum in the market. The government allocated around Rs140 billion to the IPPs, allowing them to distribute higher dividends. Consequently, this development led to a surge in the shares of these companies.

    Moreover, the cement sector experienced a notable upturn due to a decline in international coal prices. Lower coal prices benefit the cement industry as coal is a primary fuel for cement production.

    Prominent market experts, such as Salman Naqvi, the head of research at Aba Ali Habib Securities, express optimism about the market’s potential. Naqvi anticipates that the index could potentially reach a range of 45,000 to 46,000 points. However, he cautions that the rise may not be consistently linear, considering the recent slump following a historic bull run on Monday.

    On Monday, the stock market witnessed significant gains as Pakistan secured a $3 billion short-term financial package from the IMF. This package provided significant relief to the struggling economy, which was facing a severe balance of payments crisis and diminishing foreign exchange reserves.

    The funding, allocated over nine months, surpassed expectations and provided respite as Pakistan awaited the release of the remaining funds from a previous bailout package agreed upon in 2019. The IMF board is scheduled to approve the deal in July.

  • Fitch and Moody’s: IMF loan provides temporary relief for Pakistan, but risks remain

    Fitch and Moody’s: IMF loan provides temporary relief for Pakistan, but risks remain

    Fitch Ratings and Moody’s Investors Service issued warnings on Monday regarding Pakistan’s financial sustainability, despite the recent acquisition of a much-needed $3 billion lifeline from the International Monetary Fund (IMF).

    Last week, Pakistan signed a short-term (nine-month) loan programme worth $3 billion with the IMF, as the previous $7 billion programme was prematurely ending on the same day.

    The objective of the new loan programme is to provide the necessary foreign exchange to reopen imports, support listed companies in gradually resuming partially closed production, and stimulate economic activities within the country.

    Additionally, this programme serves as a signal to other donor agencies and friendly nations, which had pledged $9 billion at a Geneva meeting in January 2023, to extend new financing to Islamabad.

    However, the two global rating agencies caution that risks persist for Pakistan’s economy, particularly as the government faces a daunting $25 billion debt repayment challenge in the upcoming year starting in July.

    Krisjanis Krustins, Fitch’s Director of Sovereigns for APAC, emphasised that Pakistan will require significant additional financing beyond IMF disbursements to meet its debt obligations and support an economic recovery.

    While the IMF likely sought and received assurances for such financing, there remains a risk that it could prove insufficient, especially if current account deficits widen again.

    In order to secure the initial agreement with the IMF, Pakistan had to implement measures such as tax increases, spending cuts, and raising its primary interest rate to a historical peak.

    Although the markets responded positively to this initial agreement, leading to a significant surge in stocks and improved performance of dollar bonds, it still awaits approval from the IMF Executive Board.

    Moody’s analyst Grace Lim, based in Singapore, expressed doubts about Pakistan’s ability to secure the full $3 billion IMF financing during the stand-by period of the loan programme. Lim stated that it remains uncertain whether the Pakistani government will be able to secure the complete amount.

    Furthermore, she highlighted that the government’s commitment to implementing ongoing reforms will be tested as the country approaches elections scheduled for October 2023.

    It is worth noting that Pakistan had previously obtained a $1.1 billion loan in August, which was subsequently halted due to Islamabad’s failure to comply with certain stipulated conditions.

    According to Moody’s, the towering $25 billion debt repayment comprises both principal and interest, amounting to nearly seven times Pakistan’s foreign exchange reserves.

    Lim further added that only after the elections will it become clear whether the country will be able to enter into another IMF programme.

    Until a new programme is agreed upon, Pakistan’s ability to secure loans from other bilateral and multilateral partners in the long term will be severely limited, she cautioned.

  • IMF’s $3 billion stand-by arrangement expected to bolster Pakistan’s economy and restore investor confidence

    IMF’s $3 billion stand-by arrangement expected to bolster Pakistan’s economy and restore investor confidence

    Pakistan and the International Monetary Fund (IMF) have achieved a significant milestone with the announcement of a staff-level agreement (SLA) on a $3 billion stand-by arrangement (SBA).

    Nathan Porter, the IMF’s Mission Chief to Pakistan, expressed his satisfaction, stating that the IMF team has reached a staff-level agreement with the Pakistani authorities on a nine-month Stand-by Arrangement (SBA) in the amount of SDR2,250 million (about $3 billion or 111 per cent of Pakistan’s IMF quota).

    The Pakistani economy has been facing multiple challenges since the completion of the seventh and eighth reviews under the 2019 Extended Fund Facility (EFF) in August 2022. The country has experienced external shocks, including devastating floods in 2022 that affected millions of Pakistanis, as well as a surge in international commodity prices due to the conflict in Ukraine involving Russia.

    These shocks, combined with certain policy missteps such as constraints on the foreign exchange market, have resulted in a stagnant economic growth rate. Furthermore, inflation, particularly for essential items, has risen significantly.

    Despite the authorities’ efforts to reduce imports and the trade deficit, foreign reserves have declined to alarmingly low levels. The power sector is also facing liquidity issues, with mounting arrears (circular debt) and frequent load shedding.

    The newly established stand-by arrangement (SBA) will serve as a critical support mechanism for the Pakistani government in stabilising the economy and mitigating the impact of recent external shocks. It aims to maintain macroeconomic stability while providing a framework for financial assistance from both multilateral and bilateral partners.

    The $3 billion funding for a duration of nine months has exceeded expectations and will contribute to restoring investor confidence. The uncertainty surrounding the upcoming change in government after June 2023 has been alleviated to a considerable extent. The agreement also opens avenues for social and development spending by improving domestic revenue generation and ensuring careful execution of expenditures to address the needs of the Pakistani people.

    The successful implementation of steadfast policies is paramount for Pakistan to overcome its current challenges. This includes demonstrating greater fiscal discipline, adopting a market-determined exchange rate to absorb external pressures, and making further progress on reforms, particularly in the energy sector, to enhance climate resilience and improve the business climate.

    Given the formidable obstacles faced by Pakistan, the newly established stand-by arrangement (SBA) serves as both a policy anchor and a platform for financial support from multilateral and bilateral partners in the foreseeable future.

  • Will Pakistan secure IMF’s bailout? Decision expected within 48 hours

    Will Pakistan secure IMF’s bailout? Decision expected within 48 hours

    Prime Minister Shehbaz Sharif engaged in a telephonic conversation with Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), on Tuesday.

    During the discussion, Prime Minister Shehbaz Sharif expressed his optimistic outlook, anticipating that a decision regarding the bailout programme would be reached within the next day or two.

    In an official statement issued by the Prime Minister’s Office (PMO), it was highlighted that the premier and IMF MD delved into various matters pertaining to the IMF programme. The statement further indicated that the efforts of the finance minister and his team were duly acknowledged by the IMF MD.

    The statement continued to convey the Prime Minister’s expectation that the coordination efforts on finer details would culminate in an IMF decision in the coming days. Additionally, Shehbaz reiterated his commitment to achieving the shared goal of improving the economic situation through collaborative endeavors.

    Last week, Prime Minister Shehbaz Sharif held a meeting with Georgieva during the Summit for a New Global Financial Pact in Paris, wherein he provided a comprehensive briefing on Pakistan’s economic outlook. The Prime Minister expressed hope that the critical funds would be disbursed as a result.

    Pakistan is currently engaged in a race against time to revive its halted bailout programme, which is set to conclude on June 30. Experts emphasise the significance of resuming the IMF bailout, which has been at a standstill since November of the previous year.

    The cash-strapped South Asian economy is grappling with a balance of payment crisis, making the expected funding of $1.1 billion from the international lender crucial. This funding would also pave the way for additional inflows from Pakistan’s multilateral and bilateral partners, effectively reducing the risks associated with a potential default, as per expert opinion.

  • Russian market reopens for Pakistani rice: 15 mills get export approval

    Russian market reopens for Pakistani rice: 15 mills get export approval

    In a significant development for Pakistan’s rice industry, the Department of Plant Protection (DPP) of the Ministry of National Food Security and Research has registered 15 rice establishments for exports to the Russian Federation. This announcement comes as a ray of hope amid a declining trend in rice exports during the outgoing fiscal year.

    The recommendation of these establishments to the Russian Federal Service for Veterinary and Phytosanitary Surveillance (Rosselkhoznadzor) follows a thorough technical audit conducted by the DPP. The successful registration has been hailed as a significant achievement by the food ministry, highlighting its potential to boost exports and contribute to the overall economy of the country.

    In the past, Russia had restricted imports of rice from Pakistan due to concerns over pest interception. However, in 2021, the ban was lifted, allowing only four mills that had met the required quality standards to export rice to Russia.

    Recognising the need to capitalise on this opportunity, the DPP, in collaboration with the Rice Exporters Association of Pakistan (REAP), took proactive measures to upgrade 15 additional mills, ensuring compliance with the sanitary and phytosanitary (SPS) requirements set by Russia for rice exports.

    With the registration of these establishments, the total number of rice companies eligible to export to Russia has now risen to 19. This development is particularly significant for rice farmers, primarily located in Punjab and Sindh, as they heavily rely on these exports as a primary source of income.

    Beyond the immediate benefits to rice farmers, this achievement sets a positive precedent for Pakistan’s agrarian economy, opening doors to enhance exports in other domains by improving quality standards to meet global market demands. The agreement with Russia acts as a gateway for potential rice exports to international markets.

    Building on this success, efforts are underway to bring more rice processing facilities in line with international standards, with the aim of securing a substantial share in high-end export markets across Asia, Europe, the United States, and Australia.

    The recent decline in Pakistan’s basmati rice exports, which contracted to 541,492 tonnes ($588m) in 11MFY23 from 695,564 tonnes ($632m) in the corresponding period of the previous fiscal year, has underscored the importance of revitalising the sector.

    However, foreign sales of other rice varieties have remained strong, totaling $1.4bn with shipments of 2.964 million tonnes in July-May FY23, albeit slightly lower than the $1.6bn (3.816 million tonnes) recorded during the same period last year.

    As Pakistan’s rice industry finds new avenues for growth, there is renewed optimism among farmers, exporters, and policymakers regarding the sector’s potential to contribute significantly to the country’s economic recovery.

    By tapping into international markets, enhancing quality standards, and diversifying export destinations, Pakistan aims to strengthen its position as a leading player in the global rice trade and capitalise on its status as an agrarian economy.

  • Countdown to Pakistan’s budget unveiling: Last IMF review holds the key

    Countdown to Pakistan’s budget unveiling: Last IMF review holds the key

    Pakistan is heading towards a crucial phase as it prepares to unveil its budget on June 9, following an arduous bailout negotiation with the International Monetary Fund (IMF). A Fund official revealed that only one board review remains under the current IMF bailout package, which is seen as a step towards a successful review.

    Esther Perez Ruiz, the resident representative for Pakistan at the IMF, emphasised the need to restore the proper functioning of the foreign exchange market to pave the way for the final review.

    Ruiz outlined additional prerequisites, including passing a budget that aligns with the program objectives for the 2023-24 fiscal year, and securing credible financing commitments to address a $6 billion shortfall.

    Experts suggest that the coalition government is striving to strike a delicate balance between satisfying the demands of the IMF and winning over voters in the upcoming general election. Analysts expect the government to announce populist measures in the budget to appease the electorate while aiming to meet IMF prescriptions.

    The IMF program, which concludes this month, has approximately $2.5 billion in funds yet to be released due to ongoing negotiations between Pakistan and the lender. Pakistan’s economy is grappling with severe challenges, including high inflation, fiscal imbalances, and low reserves.

    The government is hoping that the general election scheduled for November will help alleviate the turmoil stemming from a protest campaign led by Pakistan Tehreek-e-Insaf (PTI) chairman after his removal in a no-confidence vote last year.

    Former finance minister Miftah Ismail stressed the importance of securing IMF funding, highlighting the difficulties Pakistan would face without it. Ismail expressed confidence that the government would present a budget in line with IMF prescriptions to ensure the country’s survival in the next fiscal year.

    A staff-level agreement between Pakistan and the IMF to release $1.1 billion from a $6.5 billion package has been delayed since November, further intensifying the country’s need for funds to avert a balance of payments crisis. Experts believe that even after the current program expires, Pakistan will likely seek another bailout in the upcoming fiscal year to avoid defaulting on its debt obligations.

    Pakistan’s central bank reserves can cover imports for only about a month, underscoring the urgency of securing financial assistance. Inflation in the country, home to 220 million people, has reached a staggering 37.97 per cent in May, marking a record high for the second consecutive month and making it the highest rate in South Asia.

    The planning minister recently announced that development spending targets in the new fiscal year would be set at 1,150 billion rupees ($4.02 billion), while projecting an inflation rate of 21 per cent for the same period. With the general election looming, some analysts anticipate that the government will announce vote-winning measures, even if they have to be scaled back later.

    Pakistan’s budget unveiling tomorrow will be closely watched by the nation, as it not only sets the course for the fiscal year but also represents a crucial step in the ongoing negotiations with the IMF and the government’s efforts to regain stability and boost economic growth.

  • ADB recommends targeted subsidies and tax reforms for Pakistan’s economic recovery

    ADB recommends targeted subsidies and tax reforms for Pakistan’s economic recovery

    The Asian Development Bank (ADB) has recommended that Pakistan implement targeted subsidies to alleviate inflationary pressures and improve the tax-to-GDP ratio in order to emerge from the current state of economic uncertainty.

    Yevgeniy Zhukov, Director General of the Central and West Asia Department, and Yong Ye, Country Director of the Pakistan Resident Mission, emphasised the significance of targeted subsidies to help the most vulnerable segments of society, as well as the mobilization of domestic resources to bolster the national economy. They also suggested strengthening the Benazir Income Support Programme (BISP) and improving its verification process to ensure that the assistance reaches only those who require it.

    Zhukov noted that the ADB has been providing financial assistance to the government to strengthen social security through the BISP programme since 2016. The ADB has provided $600 million in conditional cash transfers for health and education since 2021, and an additional $1.5 billion under the Countercyclical Support Facility.

    A significant portion of this funding will be directed to the BISP to provide necessary assistance to those most affected by ongoing difficulties. Zhukov further suggested that Pakistan should improve its revenue collection, as its tax-to-GDP ratio of 10 per cent is one of the lowest in the region. He cautioned that if the government is only collecting 10 per cent, it may not have adequate resources to provide support and boost income.

    Yong Ye indicated that the ADB, World Bank, European Union, and United Nations had pledged assistance to Pakistan after devastating floods last year, and a second meeting of the Geneva conference was scheduled to take place soon to discuss progress. Zhukov expressed sympathies for flood victims and stated that the ADB had approved a $1.5 billion programme for Pakistan before the floods to address the negative impact of the Russia-Ukraine war on the country’s economy, which was then repurposed to provide social protection for the flood-affected people.

    The ADB has approved additional emergency assistance, including a $175 million loan and $5 million in grants, to rehabilitate damaged infrastructure and develop a stronger infrastructure that can withstand future floods. The bank is working with Pakistan and other partners, such as the International Monetary Fund and the World Bank, to introduce important structural reforms in public finance management, domestic resource mobilization, and energy sector reforms. The ADB is committed to collaborating with its partners and the Pakistani government to ensure that the reform agenda is advanced.

  • Proposed cross-fuel subsidy plan fails to impress IMF, causing delays in bailout program

    Proposed cross-fuel subsidy plan fails to impress IMF, causing delays in bailout program

    In a bid to fulfil promises made to the International Monetary Fund (IMF), the Ministry of Finance is prepared to strongly oppose a draft summary proposed by the Ministry of Petroleum on the provision of cross-fuel subsidy.

    The proposed subsidy would involve increasing petroleum product prices by Rs75 per litre for all vehicles with engines of 1,000cc or more, in order to subsidize petrol for vehicles of 800cc and motorbikes. The draft summary was circulated among different ministries for comments before the upcoming Economic Coordination Committee meeting.

    An official from the finance ministry stated that the petrol scheme was still at the draft stage, and the ministry was preparing its comments and consulting with the IMF. The official recalled that a similar scheme had been proposed during the Pakistan Tehreek-e-Insaf (PTI) government but could not be implemented.

    Former finance minister Miftah Ismail had also allocated Rs48 billion on account of the Sasta Petrol Scheme in the last budget, but these resources were diverted towards flood-affected areas. The official added that such a scheme could not be implemented transparently in Pakistan, and the ministry would send its official comments soon.

    In March, Prime Minister Shehbaz Sharif announced the government’s plans for fuel pricing. While economists warned the decision could hinder a crucial IMF payout needed to prevent economic collapse, the government said that it was a scheme, not a subsidy.

    The IMF officials were quick to share that the Pakistani government did not consult the global lender on its petrol subsidy for low-income groups before the announcement. The Fund has asked the Pakistani authorities to provide more details about the petrol relief package causing more delay in the signing of the staff-level agreement.

    Pakistan has been trying to convince the Washington-based lender to release the next tranche of the bailout programme since the IMF funding stalled in November, hit by snags over fiscal policy adjustments after officials of the lender visited Islamabad in February for talks. They formed part of a ninth review exercise on a bailout package of $6.5 billion agreed upon in 2019 whose resumption is critical for Pakistan to avoid risking default on external payment obligations.

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