Pakistan paves way for $7.3b fresh IMF bailout


The outgoing week witnessed the dollar-hungry government of Pakistan repaying “successfully”, as the central bank puts it, the 17th and 18th instalments of the International Monetary Fund (IMF) loan the country had obtained in 2008 under Stand-by Arrangement (SBA) facility.
On Friday, the dollar-hungry Government of Pakistan, via the State Bank, was able to make another payment of SDR 95.8 million equivalent to $145.4 million to the IMF. It was a couple of days back on Tuesday when the cash-strapped country had repaid the 17th instalment amounting to SDR 95.8 million or $145.3 million to the IMF.
The analysts believe that Islamabad, despite having nominal foreign exchange reserves in hand, was doing its best not to offend the international lender by defaulting over its financial obligation under the SBA facility. Given the fact that the economic managers in Pakistan are looking hopefully at the IMF for a fresh bail-out package of $5.3 billion at least and $ 7.3 billion at maximum, the country takes the current repayments as an opportunity to please the IMF Board which may be mulling to approve the initial $5.3 billion Extended Financial Facility to be handed the resource-constrained Pakistan. An “official-level” approval has already been secured by the PML-N-led federal govt from a visiting IMF team recently.
“Pakistan successfully paid the 18th instalment today under IMF/SBA facility,” said an SBP spokesman. In total, the country dolled out to the IMF SDR 191 million or in dollar terms $ 290 million during the current week, on Tuesday and Friday. The SBP spokesman said with Friday’s repayment of 18th instalment, the country to-date repaid to the IMF SDRs 3.061 billion or $ 4.662 billion since July 2011. Of this total, the spokesman said, SDRs 2.577 billion, equivalent to $ 3.918 billion, fall under the SBA facility.
Pakistan now owes to the IMF SDR 2.359 billion under the IMF’s SBA, to be repaid until September 2015 in various instalments. Having gone alarmingly short of dollar exchange, the newly-elected PML-N-led federal government is pursuing the IMF for a widely-speculated bail-out package of $ 7.3 billion. The sought billions, however, would be used for no development works but, masterly, for the repayment of IMF loan. The country’s dollar reserves have depleted to an alarming level of $ 10.23 billion, of which the central bank holds only $ 5.142 billion. Breathing under immense pressure hard, the economic managers in the politico-diplomatically-troubled Pakistan are striving hard to comply with the IMF’s pre-conditions for the fresh loan. Critical of a narrow tax base in Pakistan, where the tax-to-GDP ratio stands hardly at 9.5 percent, the international lender wants the newly-elected PML-N government to undertake across-the-board reforms ranging from expanding the tax base to suspending huge power subsidies by rationalising utility tariffs.
Also, the IMF is pressing for the tightening of monetary policy, currently standing at 9 percent against the July-2013 inflation rate of 8.7 percent, by the central bank. Given this pressure from the IMF, the economic observers are speculating an upward revision by the State Bank in the discount rate by 50 basis points in the forthcoming policy statement. “Unofficial pressure from the IMF as a pre-condition for loan approval coupled with argument that inflation can rise in coming months may force SBP to hike rate by 50 basic points,” viewed Zeeshan Afzal, an analyst at Topline Research.