KARACHI: A delay in the resumption of a $7 billion International Monetary Fund (IMF) program has been causing significant economic losses to Pakistan, experts said on Thursday, as IMF officials expressed their confidence in the signing of an agreement to revive the loan facility.
Antoinette Moniso Sayeh, the IMF deputy managing-director, appreciated on Thursday the Pakistani government’s policies and initiatives in various sectors for the implementation of prior actions agreed with the global lender, according to a statement issued by Pakistan’s finance ministry after a virtual meeting between the country’s finance minister, Ishaq Dar, and IMF officials.
Dar, who canceled his planned Washington trip due to a political crisis last week, held virtual meetings with IMF officials on Wednesday and Thursday. The finance ministry said the IMF deputy managing-director “further extended her support to continue work together and showed confidence on signing of SLA (staff-level agreement) ‘very soon’.” In a meeting with Dar on Wednesday, according to the ministry, IMF director Jihad Azour also expressed his confidence that the agreement would be signed soon, followed by the IMF board’s approval.
The $7 billion bailout program Pakistan signed in 2019 is facing delays since November last year. Despite implementing tough conditions, the IMF and Pakistani authorities have failed to come up with the completion of a 9th review of the program that would allow the disbursement of $1.1 billion to the South Asian nation and unlock funding from other donors.
Experts said the IMF program delay had stalled country’s entire development program, and jeopardized its ability to raise dollars and foreign investment.
“The first impact of the IMF program delay is that the entire Public Sector Development Program is stalled because the funding arrangement of all friendly countries and multilaterals, including World Bank and the ADB, are contingent with the IMF,” Dr. Vaqar Ahmed, joint executive director at the Islamabad-based Sustainable Development Policy Institute (SDPI), told Arab News.
“The second issue that the leverage you take after IMF program to raise additional dollars from market in the shape of bonds from private or commercial sector that is not possible because no commercial entity, including the Chinese, will lend until you clear IMF review.”
Ahmed said as countries were not sure about repatriation of their profits, Pakistan would continue to attract lesser foreign direct investment (FDI) which has hit the rock-bottom.
The fund most recently demanded Pakistan to get financing assurances from friendly countries, including Saudi Arabia and the United Arab Emirates, to move forward with the completion of the 9th review. Saudi Arabia has already committed around $2 billion financial support to Pakistan and communicated it to the IMF last week, according to Aisha Ghaus Pasha, Pakistan’s junior finance minister.
Pakistan on Friday received a similar assurance from the UAE for $1 billion financial support within a couple of days. Islamabad has also been engaged with Doha to secure financial support, according to officials who are privy to the developments.
The uncertainty caused by the program’s delay has been exerting pressure on foreign exchange reserves that stand at $4 billion, an already weak Pakistani currency, and has pushed inflation to historic high levels.
“The inordinate delay is stoking uncertainty and instability across the entire economy. The shortage of foreign currency has caused supply-chain upheaval that is far more significant than what was seen during the pandemic,” Uzair Younus, a director at the Pakistan Initiative at the Washington-based think tank Atlantic Council, told Arab News.
“The deal should have happened weeks ago and given the precarious position of the country’s foreign exchange reserves, an agreement should be reached as soon as possible.”
Financial experts believe the IMF was unlikely to revive the program and could ask for further actions, despite financing commitments by friendly nations.
“I think that there are some other demands that country will have to meet before the SLA,” Ahmed said.
“It is very much likely that the IMF may ask you to further increase the interest rate (from 21 percent) because inflation is too high.”
Ahmed said despite signing of the SLA, the disbursement will take at least three months to materialize as the South Asian country will be in queue for approval from the IMF executive board.
The bailout program delay is worsening country’s economic growth which has been forecasted to stay below 1 percent this fiscal year.
Leading foreign institutions including the IMF, World Bank and the Asian Development Bank (ADB) have respectively projected Pakistan’s economic growth to remain 0.5 percent, 0.4 percent and 0.6 percent during the current fiscal year.
Dr. Ikramul Haq, a Lahore-based economist, agreed that the cost of program delay in terms of economic survival was “too high.”
“In the next three years, Pakistan has to make about $80 billion at external payments. It is not possible to discharge this huge liability without the support of IMF,” Haq said.
“On internal front as well, the uncertainty will keep on having pressure on foreign exchange reserves. With almost nil growth and huge fiscal deficit and rising unemployment, Pakistan has no option but to remain in the IMF program for fiscal stability and much-delayed structural reforms.”
Calling for immediate actions for the revival of the bailout program, experts voiced fears the delay would result in further weakening of the Pakistani rupee, inflation to go above 45 percent, and further increase in budget deficit and social spending.