Washington DC August 29 2022: IMF approves Pakistan program confirmed by finance Minister.
“Alhamdolillah the IMF Board has approved the revival of our EFF program. We should now be getting the 7th & 8th tranche of $1.17 billion. I want to thank the Prime Minister Shehbaz Sharif for taking so many tough decisions and saving Pakistan from default. I congratulate the nation.” says Pakistan’s Finance Minister Miftah Ismail.
Approval of this will release $1.17 billion for Pakistan and provide comfort to other lenders that help in arranging gross financing needs of more than $30 billion for this year.
Pakistan’s government in recent weeks has tied up at least $37 billion in international loans and investments pulling the country away from the kind of financial collapse seen in Sri Lanka, State Bank Deputy Governor says few days back in an interview.
In addition, Pakistan has also successfully secured an additional $4 billion from friendly countries over and above its external financing needs in FY23. As a result, FX reserves will be further augmented through the course of the year, helping to reduce external vulnerability.
With the completion of the upcoming IMF review and the additional assistance secured from friendly countries, FX reserves are projected to rise to around $16 billion during FY23, according to State Bank of Pakistan.
The Central Bank in its statement added, “To ensure this and to support the Rupee going forward, it will be important to contain the current account deficit to around 3 percent of GDP by moderating domestic demand and energy imports. In addition, it will be critical to keep the IMF program on-track by following through on the agreed fiscal tightening and structural reforms over the next 12 months.”
To highlight, FX reserves have halved from $16.4 billion in February to $7.8 billion on August 12th, as official inflows have been outpaced by official outflows. The drying up of official inflows—namely multilateral, bilateral, and commercial borrowing as well as Eurobond and Sukuk issuance—was in large part due to the delay in completing the review of the IMF program because of policy slippages. Meanwhile, on the outflows side, debt servicing on foreign borrowing continued as repayments came due.
