IMF deal not a ‘silver bullet’, says Shehbaz

By Zulqernain Tahir
Published in Dawn on July 02, 2023

• Nine-month standby arrangement comes hours before expiry of previous package
• $3bn package needs to be approved by IMF board later this month
• PM terms new deal ‘much-needed breather’ but insists nations are not built through loans

LAHORE: Soon after the government secured a much-needed $3 billion short-term financial package from IMF, Prime Minister Shehbaz Sharif said the new deal is not a silver bullet and expressed the hope that the new programme will “be the last one”.

The new nine-month standby arrangement came hours before an IMF agreement expired on Friday. The IMF’s staff-level deal with Pakistan will now be subject to approval by its board later this month.

Prime Minister Sharif described the deal as a “much-needed brea­ther” but said he prayed for this new programme “to be the last one”.

“This is not a moment of pride, but a moment to think over the reality. Do nations survive on loans? Let us pray that this is the last time that we have secured a loan from IMF and that we should not go to the IMF again,” he told the media in Lahore on Friday after the deal was signed.

He described his meetings with IMF Managing Director Kristalina Georgieva in Paris last week as a “turning point” in a series of recent discussions with the world body.

The economy has been stricken by a balance-of-payments crisis as it attempts to service crippling external debt, while months of political chaos have scared off foreign investment.

Inflation has rocketed, the rupee has reached a record low against the dollar, and the country is struggling to afford imports, causing a severe decline in industrial output.

“I am pleased to announce that the IMF team has reached a staff-level agreement with the Pakistani authorities on a nine-month standby arrangement in the amount of SDR 2,250 million (about $3bn),” IMF’s mission chief to Pakistan, Nathan Porter, said in a statement late Thursday.

The deal will need to be approved by the IMF’s executive board and will be considered by mid-July, Mr Porter said.

According to AFP, the figure represents 111 per cent of Pakistan’s IMF quota.

The $3bn IMF funding is higher than expected as it looks set to replace the remaining $2.5bn from a $6.5bn longer-term Extended Fund Facility agreed in 2019.

That bailout package was stalled since last November, with the government making last-minute changes to the national budget to try and meet the deal’s requirements. It expired on Friday, and the new agreement builds on the IMF’s efforts under the previous deal, Mr Porter said.

Finance Minister Ishaq Dar said the new deal would disburse an upfront amount of $1.1bn shortly after the IMF board’s meeting this month.

The deal will also unlock other bilateral and multilateral financing. Long-time allies Saudi Arabia, the UAE and China have already pledged or rolled over billions of loans. “This will support near-term policy efforts and replenish gross reserves,” the IMF said.

Mr Dar said Pakistan aimed to take the central bank’s foreign exchange reserves to $14bn by the end of July. “We have stopped the decline, now we have to turn to growth,” he added.

He also told media that the delay in the deal was caused “mainly because of a gap in external financing assurances”.

Pakistan’s sovereign dollar bonds were trading higher after the announcement, with the 2024 issue enjoying the biggest gains, up more than 8 cents at just above 70 cents in the dollar, according to Tradeweb data cited by Reuters.

The gains were most pronounced in shorter-dated bonds, reflecting lingering scepticism over the longer-term fiscal outlook for the country.

Later, PM Shehbaz tweeted on Friday night that the new IMF deal was a “much-needed breather”, which would help the country achieve economic stability. However, he insisted that the “nations are not built through loans. I pray for this new programme to be the last one”.

He thanked “our friends and partners”, such as China, Saudi Arabia, United Arab Emirates and Islamic Development Fund, for standing by Pakistan during economic challenges.

PM Shehbaz said Chief of the Army Staff Gen Asim Munir had also played an important role in securing the funds from Saudi Arabia and the UAE. The premier also credited Foreign Minister Bilawal Bhutto-Zardari’s efforts for diplomacy in the matter.

‘Better than expected’

Mohammed Sohail, chief of Topline Securities, said the IMF loan would restore some investor confidence.

“This new programme is far better than our expectations. There were a lot of uncertainties on what will happen after June 2023 as there will be a new government coming to power,” he said.

On Saturday, Mr Sohail tweeted that Pakistan’s exchange-traded fund (ETF) was up 5.5pc on Friday after the IMF deal. “Pakistan market was off due to Eid holidays. This ETF trend signals a rally of close to 2,000 points in the KSE-100 index on Monday when the market opens,” he said.

Former finance minister Miftah Ismail said in a tweet, “We must recognise that this IMF deal gives us yet another chance for making fundamental reforms. Unless we undertake these reforms, Pakistan will remain at the mercy of multilateral lenders and the people of Pakistan will continue to pay for the structural and governance failures of their governments.”

Michael Kugelman, director of the South Asia Institute at the Wilson Centre, criticised Pakistan’s slow progress in meeting IMF requirements for a deal.

“Islamabad waited until the very final hour to take the (politically risky) fiscal policy steps that the IMF had been hoping to see for months,” he tweeted.

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