• Thursday, July 18, 2019

Pakistan set to finalise $12bn bailout package with IMF

Discussion in 'Pakistan Economy' started by OsmanAli98, Mar 4, 2019.

  1. OsmanAli98

    OsmanAli98 SENIOR MEMBER

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    Pakistan will soon reach an agreement with the International Monetary Fund (IMF) on a potential bailout package worth $12bn that will help Islamabad support its fledgling economy, improve foreign exchange reserves and overcome a balance of payment crisis, it was learnt yesterday.
    Early indications suggest that Pakistani authorities requested a loan of $12bn. “We maintain that Pakistan and the IMF will reach an agreement over a bailout soon, with a potential bailout size of about $12bn,” Fitch Solutions said in its latest update on Pakistan’s economy.
    “We believe that the conditions and targets will focus on key areas such as fiscal consolidation and debt management, a review of monetary and exchange rate policy, financial and banking sector reforms, as well as the implementation of key structural reforms,” it added.
    It will be the highest loan by any Pakistani government in its history from the fund. Fitch noted that 2013 package improved Pakistan’s macroeconomic fundamentals over the three year time-frame before fiscal and monetary management started to slip again in late-2016 and 2017.
    “We would expect similar measures to be implemented in the event of a package being signed.” Fitch said measures to strengthen Pakistan’s fiscal and debt dynamics will likely be a major cornerstone of the IMF deal, with the end-goal of narrowing the budget deficit and stabilising the debt-to-GDP ratio through austerity measures.
    “These policies will likely be aimed at reducing the budget deficit from an estimated 6.6% in 2018 to approximately 4-5%, or even lower, over the next one-to-three years [with the budget 2018-19 (July-June) already targeting a deficit of 4.9%].
    This would be roughly in line with the consolidation programme implemented in 2013 that set out expectations for a reduction in the fiscal deficit by an annualised one% per year for three years,” Fitch added.
    Atik Munshi, senior partner at Crowe Horwath UAE, said Prime Minister Imran Khan’s government has been striving to secure more funds and aid from friendly countries and the IMF to put back Pakistan’s economy on track and improve its global reputation.
    “Pakistan has been successful in securing some funding from the Gulf countries and has good hopes of getting the IMF loan. Such a loan will come at stringent terms and Pakistan government would need to work hard for its servicing. A lot needs to be done on international and regional relationships.”
    The Imran-led government has obtained $10bn from countries including the UAE, Saudi Arabia and China in order to help stabilise foreign exchange, meet its current account deficit and support the rupee.
    Due to a persistent decline in forex reserves, the rupee has depreciated approximately 30% in the past year and Islamabad needs fresh funding to support the currency and forex reserves. And the biggest loan from the IMF will certainly help stabilise the rupee.
    Imran met IMF managing director Christine Lagarde on the sidelines of the World Government Summit in Dubai last month to discuss the loan. Ahmed Shaikhani, senior vice-president at the Pakistan Business Council, said a $12bn IMF loan in current circumstances is positive but in the coming months there could a challenge for repayment.
    “The government has no policy in place to expand its tax net or improve exports even after being in the power for seven months. Also, inflation will increase due to a hike in gas and electric prices due to the loan deal,” said Shaikhani, who is also the head of Shaikhani Group.
    He noted that the government has to come up with quick solutions and policies as the stock market and currency are under pressure. Iqbal Dawood, president of the Pakistan Business Council, said the government has no option but to go to the IMF for the loan.
    “The benefit of going to the IMF is that interest rate is low as the government The government must control its costs and reduce expenditures in addition to managing funds in such a way that the government must not opt for a loan again in the future,” he said.
    According to Fitch Solutions, public debt currently stands at 71.4% of GDP. Hence, fiscal consolidation will help to stabilise, and potentially lower, the debt load. The IMF previously targeted to lower the debt-to-GDP ratio from 63.9% in 2013 to 60.5% over a period of three years.
    However, this was not achieved and the ratio eventually rose to 67.6% in 2016. Similar to the previous loan agreement, Fitch Solutions expects the IMF will request Pakistan to strengthen tax administration, broaden the tax base and raise its tax-to-GDP ratio.
    In addition, the reduction in public spending would likely involve further reductions to energy subsidies, as the target of reducing the subsidies to 0.4% of GDP under the previous package was not met given that subsidies still stood around 0.9% in 2016.
    Moreover, there will also likely be a focus on reducing the transfers to provinces so as to better align federal and provincial responsibilities in the expenditure.
    Fitch believes that structural reforms will be another pillar of the IMF deal, similar to the reforms under the loan arrangement in 2013 and these will likely focus on the privatisation of loss-making public sector entities and measures to improve the local business scene.
     
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  2. Chakar The Great

    Chakar The Great SENIOR MEMBER

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    That would be good news. Hopefully last package.
     
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  3. Retired Troll

    Retired Troll ELITE MEMBER

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    even in war?

    baray koi dheet nasal hai
     
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  4. Foxtrot Delta

    Foxtrot Delta SENIOR MEMBER

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    Hmm double the amount first envisioned. Id rather not buy a few cars in next 5 years than go to imf. But we trust imran khan lets see what he does.
     
  5. Syed1.

    Syed1. SENIOR MEMBER

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    Damn that's a big loan to take on, the opposition and media will have a field day with this.
     
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  6. ziaulislam

    ziaulislam ELITE MEMBER

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    We have to return 6b to imf in next 2 years ..so basically if we ask for 12 b its like asking for 6 b
     
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  7. nahtanbob

    nahtanbob SENIOR MEMBER

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    more loans to repay existing ones ... sounds like a good plan to me
     
  8. BATMAN

    BATMAN ELITE MEMBER

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    Why media is afraid to call it a loan?
    Why no one is asking about the strings attached? same as we ask about Saudi aid!
     
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  9. nahtanbob

    nahtanbob SENIOR MEMBER

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    it is called state craft and keeping certain things secret
    of course it can also be a refugee for scoundrels
     
  10. ziaulislam

    ziaulislam ELITE MEMBER

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    To keep it simple previous govt played a dangerous game down rating over economy

    To roll over loans the implications are higher interest rate..our rating will imoorve if IMF gives a green signal ..this is where IMF is needed

    Had the corrwctive meausres taken in 2017 we wouldn't have been in this situation but seem the previous on purpose created this problem ..fired the NBP and state bank Head to implement this plan
     
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  11. Beethoven

    Beethoven FULL MEMBER

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    Where is @BHarwana when you need him.....
     
  12. MUSTAKSHAF

    MUSTAKSHAF SENIOR MEMBER

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  13. BHarwana

    BHarwana ELITE MEMBER

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    At your service my friend. What is bugging you bro? How can I help
     
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  14. Beethoven

    Beethoven FULL MEMBER

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    Sorry for disturbing you....just wanted your analysis on the loan Pakistan is opting for from the IMF...i mean i was expecting a loan around 6 billion but its double that amount...question is why do we need such a big amount despite getting help from brotherly nations....Thanks in advance....
     
  15. Retired Troll

    Retired Troll ELITE MEMBER

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    allah se reham ki dua hi karsakte hain. hum or aap

    find chullu bhar water
     
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