Tag: lender

  • IMF demands approval for subsidies as Pakistan struggles to secure tranche

    IMF demands approval for subsidies as Pakistan struggles to secure tranche

    Pakistan has been negotiating an agreement with the International Monetary Fund (IMF) since January 2023. The IMF has specified that Pakistan must receive prior approval before providing any additional subsidies.

    Negotiations have hit a snag over a plan announced by Prime Minister Shehbaz Sharif in March to charge wealthy fuel consumers more to subsidise prices for the poor who have been severely impacted by inflation.

    Despite meeting almost all of the Fund’s conditions, the government is struggling to convince the lender to release the tranche. On a separate issue of securing confirmation on the external financing gap of $5 billion by June 2023, the Kingdom of Saudi Arabia and the United Arab Emirates have provided over $2 billion and $1 billion respectively.

    The formal agreements with these countries are expected to be signed soon. The Pakistani authorities are complaining that the IMF has placed prior actions before signing the staff-level agreement, which was not done in the past.

    According to The News, the IMF asks for confirmation from commercial banks before signing the agreement, while banks are asking for IMF’s board approval and the revival of the Fund program to refinance loans worth $2-3 billion.

    Finance Minister Ishaq Dar has assured US diplomat Andrew Schofer that the government is committed to completing the ongoing IMF program.

  • PM Shehbaz expresses concern over IMF conditions burdening people

    PM Shehbaz expresses concern over IMF conditions burdening people

    The Prime Minister, Shehbaz Sharif, has shown worry that the terms set by the International Monetary Fund (IMF) will result in an increased burden on the citizens.

    During an appearance on the Geo News program Capital Talk, the Prime Minister attributed the stringent conditions to the previous government, alleging that they had breached their commitments to the IMF.

    Consequently, the IMF is insisting that Pakistan fulfills all of the conditions regardless of the cost, according to the Prime Minister. He acknowledged that many people in Pakistan are having trouble putting food on the table, purchasing medication, and paying for their children’s education.

    The Prime Minister claimed that former Prime Minister Imran Khan almost defaulted on Pakistan and damaged the country’s relations with numerous friendly countries. However, he stated that his government had provided relief to underprivileged individuals through the Benazir Income Support Program.

    He further stated that inflation was caused by the increased cost of imported goods as commodity prices rose due to the Russia-Ukraine conflict. In Pakistan, inflation is expected to reach its highest level in nearly 50 years.

    Additionally, Pakistan is struggling to obtain funding from friendly nations, resulting in a delay in the IMF bailout. The IMF Managing Director, Kristalina Georgieva, recently urged Pakistan to increase tax revenues and distribute subsidies only to those who truly require them. She emphasized that the IMF is dedicated to protecting the impoverished people of Pakistan.

  • IMF team to visit Pakistan in 2-3 days to finalise ninth review

    IMF team to visit Pakistan in 2-3 days to finalise ninth review

    A delegation from the International Monetary Fund (IMF) will visit Pakistan in two to three days to “undertake and complete” the key ninth review, according to Prime Minister (PM) Shehbaz Sharif.

    PM Shehbaz said that he spoke to IMF Managing Director Kristalina Georgieva and stressed that Pakistan will complete the IMF bailout programme.

    “I told her to ease the terms of the deal because I cannot burden the common man any further. We have imposed taxes on the rich strata of the society. I requested her to send a delegation for the ninth review and she replied that a team will visit Pakistan in 2-3 days.”

    “After inquiring about Pakistan’s relations with China and Saudi Arabia, she also told me that China had urged IMF to support Pakistan,” he said.

    The IMF programme is currently stalled, with experts suggesting that the government is reluctant to implement some of the lender’s conditions over their effect on political capital in a year when elections are scheduled to take place.

    PM Shehbaz said that Pakistan was trying to mend its ties with friendly countries as well. “We should appreciate friendly countries for supporting Pakistan over the past few years but the previous government slapped allegations of corruption on Chinese firms and jeopardised the China-Pakistan Economic Corridor (CPEC).”

    He stated that the former leadership “had angered friendly nations”, adding that the contribution of Saudi Arabia, UAE and China to Pakistan’s economy is priceless.

    Pakistan needs the IMF programme to restart due to its declining rupee, shrinking reserves, and worse macroeconomic indices.

    The State Bank of Pakistan’s (SBP) foreign exchange holdings dropped by another $245 million on Thursday, down to a critically low level of $5.58 billion. Since April 2014, SBP-held reserves have never been this low.

    At the same time, the government has also been unable in obtaining crucial support from allies.

    The challenge has left Pakistani authorities scurrying to set up foreign exchange amid increased concerns over the country’s capacity to pay its debts and fund imports.

    Additionally, there are market rumours that Pakistan could possibly default, but the Pakistani government is still confident that Saudi Arabia would provide essential assistance for the country’s foreign exchange reserves.

  • SBP raises key interest rate to 16% amid economic difficulties to combat inflation

    SBP raises key interest rate to 16% amid economic difficulties to combat inflation

    The State Bank of Pakistan’s Monetary Policy Committee (MPC) increased the key policy rate by 100 basis points to 16 per cent on Friday, the highest level since 1999.

    The decision, according to the central bank, reflects the MPC’s belief that inflationary pressures have proven to be higher and more persistent than anticipated, according to a statement released following the meeting.

    “This decision is aimed at ensuring that elevated inflation does not become entrenched and that risks to financial stability are contained, thus paving the way for higher growth on a more sustainable basis,” the MPC said.

    The SBP stated that, notwithstanding the continuous slowing in the economy, supply shocks both domestically and globally are increasingly responsible for inflation.

    “In turn, these shocks are spilling over into broader prices and wages, which could de-anchor inflation expectations and undermine medium-term growth,” the statement read, adding that consequently the rise in cost-push inflation cannot be overlooked and necessitates a monetary policy response.

    The MPC also pointed out that the immediate costs of fighting inflation are less than the long-term consequences of letting it persist. In the meanwhile, reducing food inflation through administrative steps to clear supply-chain snags and any required imports continues to be a top focus.

    From September 2021 to November 2022, the central bank raised the interest rate by a total of 900 basis points, bringing it to 16 per cent.

    However, the committee noted that core inflation and rising food costs are now anticipated to raise average inflation for FY23 to 21-23 per cent.

  • ADB set to approve $1.5 billion loan for Pakistan today

    ADB set to approve $1.5 billion loan for Pakistan today

    A $1.5 billion programme loan for Pakistan is slated to be approved by the Asian Development Bank (ADB) on Friday (today) as part of the BRACE (Building Resilience with Active Countercyclical Expenditure) programme.

    According to Geo, the Board of the ADB will meet in Manila to discuss whether to approve a $1.5 billion programme loan for Pakistan. It is anticipated that this loan will be disbursed after receiving permission next week, assisting Islamabad in replenishing its depleting foreign exchange reserves.

    Additionally, it is anticipated that the Asian Infrastructure Investment Bank (AIIB) will approve $500 million in co-financing, bringing the total distribution to $2 billion for the current month.

    With a projected current account deficit of $10 to $12 billion and an external debt servicing obligation of $22.9 billion, Pakistan needs $34 billion for the current fiscal year. On the flip side, the terrible floods made the already bad situation with the economy even worse.

    Pakistan suffered losses of $32.4 billion, according to the group of international donors, which also included the World Bank, ADB, UNDP, and EU. Pakistan also needed $16.2 billion for building expenditures.

    An official document states that the $1.5 billion BRACE programme loan will assist Pakistan in responding to the deepening macroeconomic crisis exacerbated by the Russian invasion of Ukraine and the catastrophic floods that have affected close to 33 million people. Prior to the latest floods, Pakistani officials had already begun work on this programme loan.

    The amount of countercyclical actions taken by the government to lessen the negative effects of cumulative external shocks, particularly on the poor and vulnerable, comes to around $2.4 billion.

  • ‘Nothing to worry about’: Dar dismisses concerns raised by Moody’s downgrading Pakistan

    ‘Nothing to worry about’: Dar dismisses concerns raised by Moody’s downgrading Pakistan

    After Moody’s Investors Service downgraded Pakistan’s sovereign credit rating on Friday, Finance Minister Ishaq Dar dismissed worries, stating there is ‘nothing to worry about’.

    “There is nothing to be worried about, I spoke with Moody’s yesterday and told them that they shouldn’t have done this. They should have consulted with us,” said Dar while talking to the media.

    The announcement follows Moody’s Investors Service’s (Moody’s) Thursday night downgrading the government of Pakistan’s senior unsecured debt rating from B3 to Caa1 for both local and foreign currency issuers.

    According to Express Tribune, the senior unsecured MTN program’s rating was similarly reduced by Moody’s, moving from (P) B3 to (P) Caa1. The future remains bleak.

    In the wake of the terrible floods that have struck the nation since June 2022, the rating agency said that the decision to lower the ratings to Caa1 was motivated by greater government liquidity, external vulnerability risks, and higher debt sustainability risks.

    The floods have significantly increased the need for social spending, compounded Pakistan’s problems with liquidity and external credit, and negatively impacted government revenue.

    According to the rating agency, Pakistan’s long-standing credit weakness of extremely weak debt affordability would continue for the foreseeable future.

    However, the Ministry of Finance vehemently contested Moody’s rating decision in its reaction. “The rating action by Moody’s is strongly contested by the Ministry of Finance as the rating action by Moody’s was carried out unilaterally without prior consultations and meetings with our teams from the Ministry of Finance and State Bank of Pakistan,” a statement issued by the ministry said.

    “Following Moody’s intimation of the rating action, the ministry held two meetings with the agency’s team over the past 24 hours, sharing data and information which clearly show a picture contradicting Moody’s rating action.

    “After a regular stock take of the economic and fiscal conditions, the Ministry of Finance informed that government policies over the last few months have helped in fiscal consolidation,” the ministry added.

    “The government had adequate liquidity and financing arrangements to meet its external liabilities.”

    Dar said that Fitch Ratings recently downgraded the UK from stable to negative. “The ratings from these agencies is essential for issuing bonds and Sukuks in the international market,” he said. He claimed that he informed Moody’s that if the organisation did not change its mind, he would provide a “befitting” response at his meeting with its representatives set for next week.

    “They (Moody’s officials) have to meet me. I told them if you don’t [reverse] this, I will give you a befitting response in our meeting next week,” he said.

  • SBP hikes interest rate by 150 basis points to control inflation

    SBP hikes interest rate by 150 basis points to control inflation

    The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) approved a 150 basis point increase in the benchmark interest rate, pushing it to 13.75 per cent to control inflation.

    It is worth noting that this is the maximum level of interest rate since 2011 when it was 14 per cent.

    The central bank mentioned in a statement that after the last MPC meeting, preliminary estimates indicate that growth in FY22 has been considerably higher than predicted.

    On May 23, the MPC agreed to hike the policy rate by 150 basis points to 13.75 per cent. “This action, together with much needed fiscal consolidation, should help moderate demand to a more sustainable pace while keeping inflation expectations anchored and containing risks to external stability.

    “External pressures remain elevated and the inflation outlook has deteriorated due to both home-grown and international factors. Domestically, an expansionary fiscal stance this year, exacerbated by the recent energy subsidy package, has fueled demand and lingering policy uncertainty has compounded pressures on the exchange rate”.

    “Globally, inflation has intensified due to the Russia-Ukraine conflict and renewed supply disruptions caused by the new Covid wave in China. As a result, almost all central banks across the world are suddenly confronting multi-year high inflation and a challenging outlook.”

    The MPC stated that raising interest rates will help to protect external and economic stability.

    “Since the last MPC meeting, secondary market yields, benchmark rates and cut-off rates in the government’s auctions have risen, particularly at the short end. The MPC noted that the market rates should be aligned with the policy rate and in case of any misalignment after today’s policy decision, the SBP would take appropriate action”.

    According to the report, overall inflation climbed from 12.7 per cent (year on year) in March to 13.4 per cent in April, led by consumable food products and core inflation. “The rise in core inflation reflects strong domestic demand and second-round effects of supply shocks,” it noted.

    The MPC believes that when power and fuel subsidies are phased out, inflation will spike momentarily and remain strong through FY23 before falling steeply in FY24. “This baseline outlook is subject to risks from the path of global commodity prices and the domestic fiscal policy stance,” it said.