July 22, 2022 (MLN): The State Bank of Pakistan (SBP) said that Pakistan will meet its elevated funding needs comfortably with the International Monetary Fund bailout remaining on track, even as the rupee is set for its biggest plunge since 1998.
“Concerns about Pakistan are being unfairly overblown,” Acting governor SBP Murtaza Syed told Bloomberg, adding that the recently secured staff-level agreement on the next IMF review is a very important anchor that puts a lot of daylight between Pakistan and more vulnerable countries.”
Pakistan needs a total of $33.5 billion in the year through June 2023, while available financing stands at $35.9bn for the period, according to a presentation SBP’s Acting Governor Murtaza Syed made to foreign investors this week, a copy of which was acquired by Bloomberg.
The IMF staff has agreed to disburse $1.2 billion to Pakistan. However, this seems insufficient in a situation where the Pak Rupee has lost 7.9% of its value this week.
The disbursement is subject to the final approval by the IMF board which is pending as the Fund is seeking assurances that Pakistan’s bilateral allies will follow through with funding commitments.
At present, Pakistan’s economy is in deep crisis, its dollar bonds and rupee are hitting fresh record lows and the country’s foreign exchange reserves are barely enough to cover 1.35 months of exports. Moreover, the country has to pay a $1bn bond payment which is due in December.
“Pakistan's economy is in deep crisis and if assistance does not come through – starting with the IMF – the feared “doom loop” of financial markets constricting the real economy will only intensify”, Atif Mian Senior Economist said in a series of tweets on Wednesday.
He said that the spread on dollar debt (16%+) is in the range where the number only matters for speculators now, the country is effectively shut off from private capital markets.
He warned that the issue is not “default” per se – but its terrible consequences for the people.
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