Delay in IMF deal may cause Pakistan to pause repayments, US bank warns

Islamabad [Pakistan], March 15 (ANI): A United States bank warned Pakistan that it will need to pause debt repayments if it does not secure funding from the International Monetary Fund soon enough, the Dawn reported. The Bank also stated that China, which is said to be a close ally of Pakistan, can rescue the country because of its close ties with the country.

The bank’s team of experts, which includes its economist Kathleen Oh, wrote: “China holds the key for relief in the near term as it is the largest creditor. With closer ties between China and Pakistan, the hope is rising for China to come on board to provide a backstop to its long-time ally”, according to Dawn On Monday, Pakistan and IMF held a virtual meeting for moving towards striking a staff-level agreement between the two sides, as per the news report.

Pakistan’s Ministry of Finance and State Bank of Pakistan (SBP) tabled the external financing plan before the IMF with the goal of increasing the dwindling foreign exchange reserves, held by the SBP up to the USD 10 billion mark till the end of June 30, 2023, The News International reported. A top official source said the revival of the IMF programme will allow Islamabad to increase required dollar funding from all possible avenues, including getting rollover of upcoming China’s SAFE deposits to the tune of USD 2 billion under the planned schemes, stated the news report.

Further, as per the news report, the total Chinese SAFE deposits stood at USD 4 billion and the remaining maturity will become due in the coming months.
According to The News International, the top official source said, “Under the planned schemes of things, the revival of the IMF program will enable Islamabad to muster up the required dollar funding from all possible avenues including multilateral, bilateral and commercial financing as well as getting rollover of upcoming China’s SAFE deposits to the tune of USD 2 billion.”

The Pakistani side informed the IMF that Islamabad implemented all harsh measures and both sides should move towards signing the state-level agreement, as per the news report. Last week, Pakistan’s Finance Minister Ishaq Dar said that external financing confirmation was not part of the prior action of the IMF for signing a state-level agreement, as per the news report. Citing sources, the report said there were nine tables under the Memorandum of Economic and Financial Policies (MEFP) that require to be fulfilled with the official figures.

However, one of the tables related to envisaging the Net International Reserves (NIR) could not be fulfilled without incorporating the external financing needs of the programme period. Last week, the State Bank of Pakistan increased the interest rate by a massive 300 basis points (bps) taking it to a record-high level of 20 per cent, in accordance with the conditions set by the International Monetary Fund, The News International reported.

The Monetary Policy Committee (MPC) has taken the decision to raise the policy rate to its highest level since October 1996 in an attempt to “anchor inflation expectations as it is critical and warrants a strong policy response,” as per the news report. Pakistan’s Central Bank increased the interest rate by 300 bps taking the total increase to 1,050 bs since January 2022 to counter rising inflation.