Pakistan races against time to satisfy IMF on budget for remaining funds

June 08, 2023 (MLN): Pakistan has to satisfy the IMF on three counts, starting with a budget to be presented on Friday, before its board will review whether to release at least some of the $2.5 billion still to be disbursed under a lending program that will expire at the end of this month, as Reuters reported. 

Esther Perez Ruiz, the International Monetary Fund's resident representative for Pakistan, said on Thursday that there was only time for one last IMF board review before the scheduled end of the $6.5bn Extended Fund Facility (EFF).

Pakistan has barely enough currency reserves to cover one month's imports. It had hoped to have $1.1bn of the funds released in November - but the IMF has insisted on a number of conditions being met before it makes any more disbursements.

"As communicated to the authorities, there can be one remaining Board meeting under the current EFF in end-June," Perez Ruiz said in an email response to Reuters.

"To pave the way for a final review under the current EFF, it is essential to restore the proper functioning of the FX market, pass an FY24 Budget consistent with program objectives, and secure firm and credible financing commitments to close the $6bn gap ahead of the Board," she added.

With just over three weeks to go before the EFF expires, there is a lot the government has to do.

The IMF had tasked Pakistan with securing external financing commitments for $6bn from other sources, but so far it has only obtained commitments for $4bn, mostly from Saudi Arabia and the United Arab Emirates.

Under pressure to shift to a more market-determined exchange rate regime and shut down an unofficial currency market, Pakistan removed daily limits on fluctuations earlier this year, but analysts suspect that the authorities are still trying to manage the exchange rate, out of fear that the rupee could fall too far.

Perez Ruiz laid out the IMF's broad expectations for the upcoming budget.

"The focus of discussions over the FY24 budget is to balance the need to strengthen debt sustainability prospects while creating space to increase social spending," she said.

More such spending would defray the impact of inflationary pressures on Pakistan's most vulnerable people, Perez Ruiz added, but the government needed to make more progress to identify spending and revenue-generating measures in order to achieve this.

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