The government in Islamabad has reported positive progress in its negotiations with the International Monetary Fund (IMF) and anticipates securing board approval in September for a new $7 billion loan program.
Finance Minister Muhammad Aurangzeb, in a text message to Reuters on Wednesday, confirmed the ongoing discussions, stating, “We are making good progress with the IMF for Board approval in September.”
This statement comes as Pakistan has yet to sign a Letter of Intent (LoI), which is necessary for formally requesting the Washington-based lender’s executive board to consider the $7 billion loan under the Extended Fund Facility (EFF) program.
According to a report by The News, despite five weeks passing since reaching a staff-level agreement for a new EFF bailout package, the country is still working to secure confirmation on an external financing gap ranging from $3 billion to $5 billion.
Both the Finance Minister and the State Bank of Pakistan (SBP) Governor, Jameel Ahmad, are expected to sign the LoI on behalf of the government. This document will then be sent to the IMF’s executive board, accompanied by a request to approve the $7 billion under the 37-month EFF program.
It’s important to note that Pakistan and the IMF reached a staff-level agreement on July 12, 2024, for the 37-month loan program. Pakistan hopes that its request will be considered by the IMF’s executive board within four to six weeks following this agreement.
The IMF has stated that the program’s approval is contingent upon its executive board’s decision and the “timely confirmation of necessary financing assurances from Pakistan’s development and bilateral partners.”
However, Islamabad is again facing challenges in securing external financing, which remains a significant hurdle in obtaining a new bailout package from the IMF.
To meet the gross financing requirements under the IMF program, Pakistan has been in discussions with Saudi Arabia, the United Arab Emirates (UAE), and China. In July, following a visit to China aimed at restructuring energy sector debt, Aurangzeb mentioned these ongoing talks.
In the past, Pakistan has relied on rollovers or disbursements from its longstanding allies, alongside IMF financing, to address its external financing needs.
Earlier this week, the IMF released its calendar of scheduled agenda items for the executive board but did not include Pakistan among the countries for which loan approvals would be considered until August 28, 2024.
The IMF did not immediately respond to Reuters’ request for comments on Pakistan’s external financing needs or the upcoming board meeting regarding Pakistan’s loan program.
During an analyst briefing following the central bank’s decision in July to reduce interest rates by 100 basis points, the central bank chief noted that rollovers of $16.3 billion were expected in the fiscal year ending in June 2025, which accounts for more than half of Pakistan’s $26.2 billion external financing requirement.
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