Since July 22, many unauthorized exchange offices have been closed after military intelligence summoned foreign exchange traders to deal with the rising dollar exchange rate in the open market. photo: file
ISLAMABAD:
As Saudi Arabia extended a new $3 billion loan to plug a sudden hole in its reserves, the government decided to ask the International Monetary Fund to increase the size of the current $7 billion bailout to offset the impact of the Middle East war on the economy.
Official sources told The Express PK Press Club that deliberations have taken place in the Prime Minister’s Office and the Finance Ministry to increase the size of the $7 billion expanded financing facility, which ends in September next year. With the fourth tranche of $1 billion approved next month, Pakistan has so far released $4 billion.
The development follows Saudi Arabia’s decision to extend another financial bailout package to Pakistan to help the country meet its external financing needs in line with IMF requirements.
Finance Minister Muhammad Aurangzeb said on Wednesday that Saudi Arabia had committed $3 billion in additional deposits, with disbursement expected next week. He further said that the existing Saudi deposit of $5 billion would no longer remain subject to the previous annual rollover agreement and would instead be extended for a longer period.
With this new loan, Saudi Arabia became the largest country to place a total of $8 billion in cash deposits with the central bank. A $3.5 billion hole has appeared in official gross foreign exchange reserves after the United Arab Emirates failed to repay its debt despite its commitments to the IMF.
Pakistan expects a total of $5 billion in new financial assistance from friendly countries to maintain reserves at current levels.
Aurangzeb said the government remained committed to maintaining reserves in line with its IMF obligations, including the target of reaching about $18 billion in reserves, equivalent to about 3.3 months of import coverage, by the end of the fiscal year.
The Express PK Press Club first reported in January that the UAE had not provided a one-year refinancing to Pakistan, but at the time the finance minister was hopeful that the friendly country would soon refinance its one-year debt.
Additional IMF loan
The government sources told The Express PK Press Club that it was decided to seek additional loan from the IMF under the existing program and there was a good chance that the IMF would honor Pakistan’s request.
The IMF chief said her organization was expecting funding requests of $50 billion from member countries to deal with the shocks of the war in the Middle East.
The sources said the IMF executive directors were also urging the Fund’s management to either increase existing programs or open new financing windows. They added that it may not be possible to seek a new financing facility from the IMF, but the existing program can be supplemented with additional loans.
Le Pakistan peut bénéficier jusqu’à 600 % de sa quote-part au FMI et, jusqu’à présent, il a épuisé 350 % de la quote-part totale. The sources said there was a window of $2-2.5 billion available, which Pakistan wanted to use to manage the effects of the war in the Middle East.
The sources said Pakistan was eligible to benefit from additional IMF financing to deal with war shocks. They said there was a very high chance that the IMF would agree to Pakistan’s request to increase the loan amount.
Providing a loan to Pakistan to deal with the aftermath of the war would not be a favor but would help the country tide over the crisis, the sources said.
Avec un quota de 600 %, le Pakistan peut bénéficier d’un prêt total de 16 milliards de dollars et a épuisé 9,5 milliards de dollars. This constitutes a strong argument for an increase under the existing Extended Financing Facility programme.
Finance Ministry officials said Aurangzeb raised the issue of additional financing with Dan Katz, first deputy managing director of the IMF.
A Finance Ministry document, released after the meeting between the IMF deputy managing director and the finance minister in Washington, said Aurangzeb engaged Dan Katz “on program continuity and the impact of external shocks.”
The Finance Ministry further said that Aurangzeb briefed the First Deputy Director General about the immediate impact of the ongoing conflict on Pakistan’s economy, particularly with regard to energy supply and logistics.
Aurangzeb “briefed IMF leaders about Pakistan’s ongoing assessment of the second- and third-order effects of the crisis, including implications for inflation, growth, exports and remittances,” the statement said.
The government’s position on the impact of the war has changed, as it previously told the IMF that its external sector would remain stable despite the war.
The sources said there were two options: either concentrate the additional IMF loan at the beginning of the period, or grant it in tranches.
However, higher exposure to IMF debt would also lead to higher interest rates and surcharges, the sources said. They said Pakistan will have to pay higher interest rates to the IMF to avail this additional facility.
Aurangzeb also took up the issue of higher surcharges on additional loans from the IMF during his ongoing visit. Muhammad Aurangzeb called for a rapid and thorough review of the IMF surcharges, saying it had significant implications for developing economies.
The sources said high surcharges can be avoided by convincing the IMF to advance the additional loan amount instead of spreading it in installments.
The IMF mission will also arrive in Pakistan mid next month to finalize the new budget, including deliberations on fiscal issues.
