A new stand-by arrangement with the IMF: Here are some key points

[ghazi52]

,..,,.

A new stand-by arrangement with the IMF: here are some key points​

• After a massive delay, govt succeeds in convincing IMF to allot it more money than expected

Bilal Memon
June 30, 2023

The wait is finally over for Pakistan, literally on the day the Extended Fund Facility (EFF) was scheduled to expire. Early morning on Friday, it was announced that Pakistan and the International Monetary Fund (IMF) reached a staff-level agreement on a fresh nine-month, $3 billion stand-by arrangement (SBA) with an Executive Board meeting expected by mid-July.

The news comes as a major breakthrough for Islamabad that ran from pillar to post to meet conditions of the Washington-based lender only to see an incessant delay on a successful completion of the ninth review. During this time, the public was alienated, heavy taxes were imposed, and questions were raised on Pakistan’s debt obligations.

With a new SBA, which runs through July-March of fiscal year 2023-24, here are some key points to keep in mind as Pakistan navigates the coming months.

1. The IMF Executive Board is likely to meet by mid-July to formally approve the new arrangement with Pakistan
2. This is not good news for short sellers. Majority of investors are likely to see this as a major positive and the KSE-100, a benchmark for market performance, is likely to get an upward push when the holidays are over
3. Pakistan’s dollar-denominated bonds are likely to see their rally continue as well
4. A ratings upgrade could be on the horizon after several downgrades announced by Moody’s, Fitch Ratings, and S&P
5. The new facility also unlocks access to capital markets for Pakistan, opening up avenues for lending as it looks to finance its external funding gap. Pakistan has budgeted $1.5 billion as a Eurobond/International Sukuk for fiscal year 2023-24. This amount is likely to be dependent on the rates it is offered in the international market
6. Pakistan’s foreign exchange reserves, currently under $4 billion according to latest available data, are likely to get a boost as Saudi Arabia, UAE, and other bilateral partners also come through
7. This is a fresh nine-month programme, implying that to move forward, there will be a new set of conditions to keep the SBA going
8. It gives some room to the government ahead of elections, and takes the onus off the ‘caretaker setup’ to take measures for the economy
9. The IMF will keep a close eye for the next nine months to ensure Pakistan does not sway from its economic measures. The key things it will look at will be the imposition of the petroleum development levy (the new ceiling is Rs60)
10. The IMF acknowledged that Pakistan’s economy faced several external shocks, but was quick to point out that there were “some policy missteps” including “shortages from constraints on the functioning of the FX market”. The exchange rate and gap between inter-bank and open markets will be closely followed
11. The IMF highlighted that “liquidity conditions in the power sector also remain acute”. This could imply that a power tariff hike is likely. Another scenario could be settlement of circular debt through dividend payouts. We will have to wait and watch
12. The lender wants that the revised budget be executed as planned, and that “authorities resist pressures for unbudgeted spending or tax exemptions in the period ahead”. Scrutiny on tax exemptions/subsidies will be high, and the new SBA could be derailed if measures that benefit the government’s vote-bank are announced ahead of elections
13. A watchful eye will also be on the State Bank of Pakistan (SBP), and how it handles its monetary policy as well as import prioritisation/exchange rate. The rupee could appreciate in the short-term, but the IMF wants “full determination of the exchange rate”. In other words, the rupee should appreciate and depreciate depending on Pakistan’s dollar liquidity. With import restrictions now removed, there will be pressure on the rupee as well
14. The IMF said the SBP should remain proactive to reduce inflation, and maintain a foreign exchange framework free of restrictions on payments and transfers for current international transactions and multiple currency practices. This could mean that the key policy rate is likely to remain high in the short-term, and anchored inflation will remain a priority
15. Pakistan will need to mobilise financial support from multilateral institutions and bilateral partners, and convert them into tangible inflows. So far, inflows that have been pledged/committed have not landed in Pakistan’s official accounts
16. In addition, viability of the energy sector (including through a timely FY24 annual rebasing), improving governance of state-owned entities, and strengthening the public investment management framework, including for projects needed to build resilience to climate change, are to remain focus areas

A new stand-by arrangement with the IMF: here are some key points

After a massive delay, govt succeeds in convincing IMF to allot it more money than expected

www.brecorder.com

 

[ghazi52]

,.,.
"After 15 months of dancing and rubbing noses, the IMF agreement has been reached. How will the rivers of milk and honey come out of this?
It remains to be googled."
Ayaz Ameer

​

 

[Samlee]

I Thought Dar Said He Will Not Take Dictation from IMF

 

[ghazi52]

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IMF board approves critical $3bn loan for Pakistan​

Reuters | Dawn.com
July 12, 2023

The International Monetary Fund’s (IMF) executive board approved a $3 billion bailout programme for Pakistan on Wednesday, the lender said, which will immediately disburse about $1.2 billion to help the country.

On June 29, the IMF and Pakistan reached a Standby Arrangement to ease the country’s financial crisis.

“The Executive Board of the International Monetary Fund approved a 9-month Stand-By Arrangement (SBA) for Pakistan for an amount of SDR2,250 million (about $3 billion, or 111 per cent of quota) to support the authorities economic stabilisation programme,” the global lender said in a statement.

It said the arrangement comes at a challenging economic juncture for Pakistan. “A difficult external environment, devastating floods and policy missteps have led to large fiscal and external deficits, rising inflation and eroded reserve buffers in FY23.”

The press release stated that the new programme would provide a policy anchor to Pakistan for addressing “domestic and external imbalances” and a framework for financial support from multilateral and bilateral partners.

“The programme will focus on (1) implementation of the FY24 budget to facilitate Pakistan’s needed fiscal adjustment and ensure debt sustainability while protecting critical social spending; (2) a return to a market-determined exchange rate and proper FX market functioning to absorb external shocks and eliminate FX shortages; (3) an appropriately tight monetary policy aimed at disinflation; and (4) further progress on structural reforms, particularly with regard to energy sector viability, SOE governance, and climate resilience,” the IMF added.

Moreover, it said the executive board approval allowed for an immediate disbursement of $1.2bn, with the rest to be phased over the programme’s duration — subject to two quarterly reviews.

IMF’s approval comes after Saudi Arabia and the United Arab Emirates (UAE) deposited $2 billion and $1 billion, respectively, with the State Bank of Pakistan, boosting the foreign exchange reserves.

The $3bn funding, spread over nine months, is higher than expected for Pakistan. Earlier, the country was awaiting the release of the remaining $2.5bn from a $6.5bn bailout package agreed in 2019, which expired in June.

Commenting on the development, Prime Minister Shehbaz Sharif said the approval of the $3bn agreement was a “major step forward” in the government’s efforts to stabilise the economy and achieve macroeconomic stability.

“It bolsters Pakistan’s economic position to overcome immediate- to medium-term economic challenges, giving the next government the fiscal space to chart the way forward,” he stated.

The premier said the “milestone”, which he claimed was achieved “against the heaviest of odds” and against a “seemingly impossible deadline”, could not have been possible without “excellent team effort”.

“I would commend Finance Minister Ishaq Dar and his team at the Ministry of Finance for their hard work,” PM Shehbaz said. He also thanked the IMF managing director and her team for their support and cooperation.

Meanwhile, Dar expressed gratitude and said that “things are now moving in the right direction” for which the government had been striving for the past several months.

“There were tough negotiations,” he stated in an interview on Geo News programme ‘Aaj Shahzeb Khanzada Key Saath’.

“Our 2019-2022 programme, which was extended for a year […] we were expecting $1.19bn in the 9th review and the rest was supposed to lapse,” he said.

Dar recalled that most of the government’s energies were spent on reaching the standby arrangement with the lender. “Thankfully, our efforts were successful and for this, we had to impose taxes.”

“I have tried that by the end of the [government’s] tenure — preferably by the end of July — the national reserves are between $14bn and $15bn,” the finance minister said, asserting that Pakistan was headed in a favourable direction now.

“All these reforms that we have brought are in the interest of Pakistan and they should remain intact. It will also be our utmost priority to ensure that this becomes the second programme that is completed by Pakistan,” Dar added.

 

[ghazi52]

,.,.

US welcomes staff-level agreement between Pakistan and IMF​

• US State Dept spokesperson says 'our support for country's economic success is unwavering'

 

[PakAlp]

Shocking how a country of 250M, nuclear armed state cannot survive without foreign loans. Wouldn't this be classified as a failed state, failed political system, failed economic and education policies.

 

[ghazi52]

,..,,.

Power tariff hiked on IMF’s demand, was necessary to control circular debt: PM Shehbaz​

Calls on business community to play its part in economic revival, disassociate itself from those who indulge in electricity theft.

Prime Minister Shehbaz Sharif on Saturday reiterated that the recent rise in the base power tariff of around Rs5 per unit was made on the demand of the International Monetary Fund (IMF) but also to bring the circular deficit.

A day ago, the power regulator raised the tariff to ensure Rs3.28 trillion in funds to the loss-making power distribution companies (Discos) during the current fiscal year. The Rs4.96 hike, set to come into force from July 1 after formal notification by the government, would provide Rs477 billion in additional revenue to Discos.

The revised national average tariff for the 2023-24 fiscal year has been determined at Rs29.78 per unit (kilowatt-hour, or kWh), which is Rs.4.96 per unit higher than the previously determined national average tariff of Rs24.82, the National Electric Power Regulatory Authority (Nepra) said in a statement.

An official said the real applicable average national tariff would now stand between Rs50 and 56 per unit after including surcharges, taxes, duties and levies, besides monthly and quarterly adjustments.

 

[ghazi52]

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IMF condition: Hike in gas prices on the cards​

 

[hari sud]

No matter how soft the IMF will go on Pakistan, it is the military expenditure which will doom Pakistani economy again and again. The generals are not prepared to compromise and they will unseat any elected official who even tries to reduce the defence expenditure.

Hence there is a need of revolution in which the current establishment of military, bureaucrats and businessmen is unseated and that fancy talk of building military to grab Kashmir from India is put on the back burner.

Without that there is no hope for Pakistan.

Pakistani establishment has to understand that India is growing by leaps and bound and Pakistan can never catch up with it in near or distant future. The only foolish things they can do is to instigate Muslim population in India. That will be to their detriment.

 

[Menthol]

Shocking how a country of 250M, nuclear armed state cannot survive without foreign loans. Wouldn't this be classified as a failed state, failed political system, failed economic and education policies.

Why I do have feeling that Pakistan, Afghanistan, around this region is more like Africa decades ago.

The new Africa.

Unable to develop its economy, backward is for sure.

Always busy with conflicts and war.

Pakistan is a friend of China, why not ask China how to develop their country and implement it in Pakistan.

 

[epebble]

Why I do have feeling that Pakistan, Afghanistan, around this region is more like Africa decades ago.

The new Africa.

Unable to develop its economy, backward is for sure.

Always busy with conflicts and war.

Pakistan is a friend of China, why not ask China how to develop their country and implement it in Pakistan.

Some African countries have different problems. If you want to compare the economic problems, that set would include Argentina, Greece, Egypt, Lebanon, Sri Lanka etc., It is a consequence of dysfunctional polity, not necessarily backwardness of people.

 

[ghazi52]

,.,..,

 

[nahtanbob]

on a serious note Pakistan has gotten fresh loans and rolled over payments on existing debt. Isn't the bill going to come around in 2-3 years ?

 

[ghazi52]

,.,.

China has rolled over $2.4bn loan for two years​