Tag: financial support

  • IMF greenlights $700 million for Pakistan’s economic stabilisation programme

    IMF greenlights $700 million for Pakistan’s economic stabilisation programme

    In a significant development, the International Monetary Fund (IMF) successfully concluded its first review of Pakistan’s economic reform programme on Thursday.

    This programme, backed by a $3 billion and-by a arrangement (SBA), has now received a boost with the immediate approval and disbursement of $700 million, as confirmed by the finance ministry.

    According to an official statement from the ministry, the completion of the first review by the IMF’s Executive Board, coupled with the payment of $528 million in special drawing rights, has elevated the total disbursements under the SBA to $1.9 billion.

    The infusion of funds from the IMF, combined with recent inflows from multilateral lenders, is anticipated to contribute to the stability of the Pakistani rupee, which has demonstrated relative steadiness over the past few months.

    The finance ministry highlighted that this fresh tranche would play a crucial role in facilitating rollovers from allied countries, including the United Arab Emirates, China, and Saudi Arabia.

    Additionally, it is expected to alleviate external debt repayment pressures faced by Pakistan.

    This positive development traces back to June 2023, when the IMF Executive Board granted approval for a much-needed nine-month arrangement with Pakistan to support its economic stabilisation program.

    The initial disbursement of $1.2 billion was promptly released in July, with the remainder subject to two quarterly reviews over the programme’s duration.

    The current IMF programme is slated to conclude in the second week of April, with the recent disbursement marking a significant step towards its successful execution.

    Notably, a staff-level agreement was reached in November 2023 between the IMF staff and Pakistani authorities, paving the way for the first review under Pakistan’s SBA.

    This agreement was contingent upon subsequent approval by the IMF’s Executive Board.

    Looking ahead, Pakistan is poised to receive the remaining amount in March under the $3 billion SBA.

    Despite facing challenging conditions, particularly persistently high inflation, which rose to 29.7 per cent in December from 29.2 per cent in the preceding month, Pakistan remains committed to navigating through these economic challenges with the assistance of international financial institutions.

  • Tariff hike of Rs1.72 per unit approved for K-Electric consumers 

    Tariff hike of Rs1.72 per unit approved for K-Electric consumers 

    The Economic Coordination Committee (ECC) has granted approval for quarterly tariff adjustments of Rs1.72 per unit for K-Electric, alongside government guarantees of Rs100 billion for Pakistan State Oil (PSO) and a Rs20 billion credit facility for Punjab’s Green Cooperative Initiative. 

    The ECC session, presided over by Federal Minister for Finance Dr Shamshad Akhtar and attended by other federal ministers and senior officials, addressed various summaries submitted by ministries such as Interior, Maritime Affairs, Energy (Power Division), Energy (Petroleum Division), Poverty Alleviation and Social Safety, and Defence. 

    The decision to adjust the tariff for K-Electric was reached after careful consideration of a summary presented by the Ministry of Energy regarding “Uniform Quarterly Tariff Adjustments for K-Electric Consumers on a par with XWDISCOs 2nd and 3rd Quarterly FY 2023.” 

    Following in-depth discussions, the ECC concluded that the tariff rationalisation through adjustments for K-Electric, aligning with the uniform Quarterly Tariff Adjustment (QTA) guidelines already issued to NEPRA, will be applicable to the consumption of July, August, and September 2023.  

    According to The News, these adjustments are set to be recovered from K-Electric consumers in December 2023, January 2024, and February 2024, respectively. 

  • CAA’s timely intervention saves PIA from defaulting on IATA payments

    CAA’s timely intervention saves PIA from defaulting on IATA payments

    The Civil Aviation Authority (CAA) stepped in to rescue Pakistan International Airlines (PIA) from a potential financial crisis with the International Air Transport Association (IATA).

    According to ARY News, the CAA provided PIA with one billion Pakistani rupees to settle its outstanding dues with IATA. This timely payment prevented IATA from declaring PIA in default, a situation that could have led to the suspension of PIA’s global ticket sales.

    It’s important to note that PIA was facing a severe financial crisis and couldn’t meet its service charges to IATA. The Director General of CAA confirmed that, following the Ministry of Finance’s directive, one billion rupees were allocated to PIA for a week to support the national airline during these challenging times.

    In addition, it has come to light that PIA also owes a substantial amount to CAA, totaling several billion rupees.

  • Rising debt levels: Pakistan’s national debt surpasses Rs61 trillion

    Rising debt levels: Pakistan’s national debt surpasses Rs61 trillion

    The federal government has witnessed a substantial increase in its total debt, which has surged to nearly Rs62 trillion. This significant escalation is primarily attributed to the government’s strategic borrowing from both domestic and foreign sources, a measure aimed at covering the fiscal deficit.

    According to The News, data from the State Bank of Pakistan (SBP) reveals that as of July 2023, the total debt of the government stands at Rs61.75 trillion. This figure reflects a substantial year-on-year increase of 22.11 per cent, compared to Rs50.57 trillion recorded in July 2022. Furthermore, on a month-on-month basis, the government’s debt exhibited a 1.49 per cent increase from Rs60.84 trillion in June 2023.

    The surge in the debt burden can be predominantly attributed to the government’s reliance on domestic and foreign borrowing mechanisms to address fiscal deficits.

    Breaking down the composition of the debt, data from the central bank highlights that a significant portion of Rs39.02 trillion is domestically sourced, representing a notable year-on-year growth of 24.08 per cent. This domestic debt comprises Rs29.59 trillion in long-term debt and Rs9.29 trillion in short-term debt. The remaining Rs22.73 trillion is external in nature.

    By the close of July 2023, the government’s long-term debt had escalated by 24.44 per cent year-on-year to Rs29.59 trillion when compared to the figure of Rs23.78 trillion recorded in the same period a year earlier. In parallel, short-term debt exhibited a substantial year-on-year increase of 27.14 per cent as opposed to Rs7.31 trillion in July 2022.

  • 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.

  • Pakistan lifts import restrictions to satisfy IMF demand

    Pakistan lifts import restrictions to satisfy IMF demand

    In a recent development, the State Bank of Pakistan (SBP) has taken the decision to lift all import restrictions as part of fulfilling a condition set by the International Monetary Fund (IMF).

    The central bank issued a circular to officially end these restrictions, thereby satisfying another requirement put forth by the IMF.

    To facilitate the release of over 6,000 containers, the federal government has granted permission to banks for remittance provision. The circular issued by the SBP states that remittances will be provided for all imports following the implementation of this latest order. The central bank has instructed authorised dealers to process remittances based on the recommendations of stakeholders.

    It came to light yesterday that Pakistan and the IMF are facing challenges in reviving a loan program, leading to disagreements between the Ministry of Finance and the IMF. Sources revealed that the plan to bridge the external financing gap relied on funds received from a donor conference held in Geneva.

    The primary objective of the conference was to garner support and contributions for Pakistan’s financial requirements. As part of this plan, the IMF was tasked with securing $500 million by June through the Geneva Donor Conference. However, efforts to obtain funds for the Ministry of Planning and Treasury have encountered obstacles. Delays in finalising contracts and agreements under the Donor Conference have further impeded the financing process.

    Sources within the Ministry of Finance report that the amount received through the Geneva Donor Conference currently stands at $150 million, falling short of the expected sum. This has raised concerns from the IMF, which has expressed dissatisfaction with the level of financial support obtained through the conference.

    According to ARY News, the funds acquired from the Donor Conference will be allocated to crucial recovery and rehabilitation projects in regions affected by floods. The aim is to address the needs of these communities and provide support for their restoration efforts.

  • Pakistan is making desperate efforts to revive IMF programme before deadline

    Pakistan is making desperate efforts to revive IMF programme before deadline

    Pakistan is facing a critical situation as it seeks to revive its stalled Extended Fund Facility (EFF) programme with the International Monetary Fund (IMF). The $6.5 billion programme is set to expire on June 30, and negotiations for the ninth review, due last November, have not been successful.

    Efforts to reach a Staff Level Agreement (SLA) with the IMF have been ongoing, but disagreements persist regarding the conditions set by the Fund. The SLA must be signed before Pakistan unveils its 2023-24 budget on June 9, or the current programme will fail.

    According to The News, two options are being considered. The first involves signing the SLA immediately, requesting approval from the IMF Executive Board for the next $1 billion tranche, and extending the EFF programme for a few months to complete the 10th and 11th reviews. The second option is to combine the 9th and 10th reviews, share budgetary figures with the IMF, and sign the SLA after the budget announcement. If approved by parliament, the IMF’s Executive Board could then grant an extension for the completion of the 11th Review by July or August 2023.

    However, finding a solution is proving challenging. Maintaining the status quo will not lead to any breakthroughs, and consensus must be reached between Pakistan and the IMF. Political uncertainty, inadequate economic management, and the inability to secure sufficient external financing have hindered progress.

    Without an IMF programme, Pakistan’s options are limited. The risk of default would increase, and reserves would remain weak. Although there are options available, such as striking the SLA in the next few days or combining reviews, they are becoming increasingly difficult. Life without the IMF would require seeking financing from other sources at higher costs.

    It is crucial for Pakistan to resolve its differences with the IMF and secure the continuation of the EFF programme. Failure to do so would have severe consequences for economic stability and future financing prospects.

  • Pakistan commits to 4% annual profit on $2 billion deposit from Saudi Arabia

    Pakistan commits to 4% annual profit on $2 billion deposit from Saudi Arabia

    According to reliable sources, Pakistan has agreed to pay an annual profit of four per cent to Saudi Arabia on a deposit of $2 billion with the State Bank of Pakistan (SBP) for a duration of one year.

    This decision was made to fulfill one of the prerequisites set by the International Monetary Fund (IMF), which demanded that Pakistan secure external funding of approximately $6 billion, according to Brecorder.

    Additionally, the United Arab Emirates (UAE) has also confirmed to the IMF that it will deposit $1 billion with the State Bank of Pakistan.

    On May 10, 2023, the Finance Division presented an additional agenda item to the Federal Cabinet, informing them that the Kingdom of Saudi Arabia, through its Ministry of Finance, had agreed to deposit $2 billion with the State Bank of Pakistan for a one-year period. The proposed annual profit rate was set at 4 per cent.

    The draft Deposit Agreement, provided by the Saudi side, was sent to the Ministry of Law and Justice and the Office of the Attorney General for Pakistan for examination and clearance in accordance with the Cabinet’s decision on May 14, 2019.

    Upon approval by the Federal Cabinet, the Finance Division of the Government of Pakistan will authorize the State Bank of Pakistan to proceed with the Deposit Agreement. The Ministry of Law and Justice has given its clearance to the draft

    Agreement, subject to the completion of all necessary formalities, while the Federal Board of Revenue (FBR) has granted its approval for tax exemption.

  • Pakistan shares plan with IMF to bridge $3 billion financing gap

    Pakistan shares plan with IMF to bridge $3 billion financing gap

    The coalition government of Pakistan has revealed its plan to the International Monetary Fund (IMF) for obtaining an additional $3 billion to fill the financing gap as it tries to persuade the lender to release the next loan tranche.

    In order to conclude talks with Pakistan regarding its delayed bailout, the IMF required “necessary” financing guarantees as soon as possible. Pakistan was asked to raise $6 billion in external financing, which is required by the country until June to avoid a potential default.

    This figure was determined on the assumption that the current account deficit would remain at around $7 billion in the current fiscal year. The IMF welcomed the recent announcement of financial support from key bilateral partners, but this support is inadequate for Pakistan’s requirements.

    Islamabad informed the IMF about its plan to secure a $450 million second Resilient Institutions for Sustainable Economy (RISE-II) budget support loan, as well as its plans to obtain $1 billion from the Asian Infrastructure Investment Bank (AIIB) and other commercial banks, and to materialise pledges made at the Geneva moot. According to sources, once the staff-level agreement is signed with the IMF, it will become easier for Pakistan to obtain financing.

    Pakistan’s foreign exchange reserves have fallen to cover barely a month of imports following the stall in IMF funding in November, which was later complicated by snags over fiscal policy adjustments after officials from the lender visited Islamabad for talks in February. The fiscal policy adjustments were part of the ninth review exercise on a bailout package agreed upon in 2019, whose resumption is crucial for Pakistan to avoid the risk of defaulting on external payment obligations.

    Pakistan will receive another disbursement of more than $1 billion from the IMF programme before it ends in June, which will unlock other bilateral and multilateral financings for the country, helping to ease its financial difficulties.

    Programme loans from other multilateral agencies await completion of the IMF review, as reported by central bank governor Jameel Ahmad during the spring meetings of the lender and the World Bank in Washington.

  • Pakistan awaits financial support confirmation from Saudi Arabia and UAE to sign IMF agreement

    Pakistan awaits financial support confirmation from Saudi Arabia and UAE to sign IMF agreement

    The signing of the staff-level agreement (SLA) between Pakistan and the International Monetary Fund (IMF) is dependent on confirmation of financial support from the Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE). Once support confirmation is received from KSA and UAE, the SLA will be signed with the IMF.

    Finance Minister Ishaq Dar reportedly informed diplomats in Islamabad at an Iftar dinner on Sunday that the issues with the IMF will be settled soon. However, it has been 46 days since the IMF and Pakistan concluded review talks in Islamabad on February 9, and the staff-level agreement is yet to be secured.

    There have also been dissenting views within the Finance Ministry on the issue of cross-fuel subsidy. While some bureaucrats from the ministry have opposed the scheme, the government went public with it, which has caused concern.

    Officials who spoke on the condition of anonymity told The News, that such schemes would jeopardize the revival of the IMF program, and it remains to be seen how the ministry will satisfy the global lender on the subsidy. The status of the 10th and 11th reviews, which were due on February 3 and May 3, respectively, is also unknown at this time, even if the IMF program is revived.

    The situation highlights the importance of financial support from KSA and UAE to Pakistan, as well as the potential impact of domestic policy decisions on the country’s relationship with the IMF. Despite Finance Minister Dar’s assurances, it is unclear when the SLA will be signed, and how the subsidy issue will be resolved.

    As the reviews remain in question, the situation underscores the need for Pakistan to address economic challenges and seek support from its allies to maintain its financial stability.