Karachi, January 31, 2022 (PPI-OT): IMF Program: Better late than never
Taking more than a normal course of time of two weeks, the IMF program with Pakistan is slated to resume after Executive Board meets on Feb 02’22 as the implementation of prior actions, related to fiscal and institutional reforms, are now complete after parliamentary approval of SBP Amendment Bill 2021.
This embarks Pakistan on a journey to gain additional foreign flows of c.US$8bn over the near-term, including IMF EFF disbursements, enhancing the capacity to fund the external account imbalances.
However, the repayment schedule to the Fund is kick-starting in the ongoing quarter and the pressure on external debt repayments continues to withstand the sanguine inflows.
EFF resumption finally in the bag
With the approval of SBP Amendment Bill 2021 in the Upper House of Parliament last week, one can safely say that it has taken Pakistan and IMF more than two months, instead of about less than half a month, as seen historically, to release the tranche after reaching a staff-level agreement. Nevertheless, it should be noted that the staff-level agreement had highlighted the disbursement approval of Executive Board, slated to meet on Feb02’22, stood contingent to the implementation of prior actions, related to fiscal and institutional reforms. Effectively, the Finance (Supplementary) Act 2021 and the SBP Amendment Bill 2021 are now in play.
Foreign flows will aid overcoming external pressures
The resumption of the IMF Program will now bring an immediate release of US$1.06bn (SDR750mn) to Pakistan. Consequently, total EFF disbursements will now stand at US$3.03bn (SDR2.14bn) out of the approved facility of US$5.98bn (SDR4.27bn). It is pertinent to note that an additional disbursement of US$1.4bn (SDR1.02bn) was made to Pakistan in Apr-2020 in terms of Rapid Financing Instrument (RFI) to assist in overcoming economic shocks of COVID-19.
Pakistan’s short-term drains on FCY assets, as at Dec31’21, stand at a nominal value of US$11.79bn for the next 12 months. However, the current outlook of reserve build-up is encouraging after Pakistan bagged US$3bn from Saudi Arabia in Dec-2021 and US$1bn from International Sukuk issuance during ongoing Jan-2022. Moreover, the IMF flows of US$1bn will be followed by c.US$2-2.5bn of multi-lateral and bilateral flows while the government is seeking another approval of US$3bn loan from China’s State Administration of Foreign Exchange (SAFE), also known as SAFE deposits, to increase foreign exchange reserves.
Fund’s repayment schedule has kick-started
As per Projected Payments’ schedule available on IMF’s website, repayments to the Fund have started in the ongoing quarter with US$249mn in 3QFY22 and US$279mn in 4QFY22. This will likely increase beyond FY23 when Pakistan will also have to retire the US$1.4bn RFI over a course of two years.
The upcoming Executive Board approval will tell more on how the Fund is projecting the upcoming disbursements, repayments and Pakistan economic outlook. With the EFF conclusion in Sep-2022 as the last review, there are only two reviews remaining, the second last one in Mar-Apr-2022, as is.