Pakistan to seek fresh IMF bailout package of over $8bn next month

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ISLAMABAD: Pakistan will make a formal request to the International Monetary Fund (IMF) for a longer and larger size of fresh bailout package under the Extended Fund Facility (EFF) next month, The News reported Sunday. 

The country is expected to seek a fresh IMF bailout package of over $8 billion with the possibility of augmentation through climate finance on the occasion of upcoming spring meetings of Breton Wood Institutions, known as the IMF/World Bank, scheduled to be held in Washington, DC, from April 15 to 20. 

A Pakistani delegation, led by Minister for Finance Muhammad Aurangzeb and comprising Finance Secretary Imdadullah Bosal, Secretary EAD Kazim Niaz and Governor State Bank of Pakistan Jamil Ahmed, will participate in the meetings.

There are two possibilities for Pakistan to request a longer and larger size of the EEF programme. The first one is that the inflation-hit country may ask for its enhanced quota like it did in 2008 when Islamabad secured 700% of its quota during the Pakistan Peoples Party (PPP) government. 

The other possibility is to augment the EFF through climate finance instrument as Pakistan qualifies for it due to the worst climate degradation in last few years. 

Pakistan may also comb both options keeping in view the requirement of longer and larger programme size by Pakistani side as the quota might be enhanced and augmented through climate finance.

According to the sources, the IMF’s review mission is in Pakistan for the completion of second review under $3 billion standby arrangement (SBA) programme and release of third and last tranche of $1.1 billion. However, discussions are being held on the larger EFF programme. 

If the talks conclude positively, then the global lender will release the last tranche of $1.1 billion till April 12. 

“Keeping in view the limited timeframe, the IMF mission has kept its parleys period shorter and would hold talks from March 14 to 18 so that they can prepare the draft Memorandum of Economic and Financial Policies (MEFP) within the limited timeframe,” sources confirmed to The News. 

The Pakistani side may prefer informing the IMF team about another bailout package verbally, however, the IMF team focused on discussing the ongoing SBA programme.

There might be a similarity between Pakistan and Egypt’s IMF programme as the latter’s funding was augmented to $8 billion recently with stringent conditions in which the policy rate was increased by 600 basis points with a 200% recent hike and expected devaluation of 30%, warned independent economists. 

The South-Asian country is exploring the possibility of requesting the IMF for Resilience and Sustainability Facility (RSF), under which countries are provided with affordable long-term financing with reforms to reduce risks to prospective balance of payments stability, including those related to climate change and pandemic preparedness.

It will provide longer-term financing to strengthen economic resilience and sustainability by (i) supporting policy reforms that reduce macro-critical risks associated with climate change and pandemic preparedness, and (ii) augmenting policy space and financial buffers to mitigate the risks arising from such longer-term structural challenges.