Hong Kong July 10 2023: IMF board approval of the Stand By Agreement will unlock external financing disbursement of more than USD 20 billion for Pakistan, says Fitch in its rating upgrade report.
IMF board approval of the SBA will unlock an immediate disbursement of USD1.2 billion, with the remaining USD1.8 billion scheduled after reviews in November and February 2024. Saudi Arabia and the United Arab Emirates have committed another USD3 billion in deposits, and the authorities expect USD3-5 billion in other new multilateral funding after the IMF agreement. The SBA should also facilitate disbursement of some of the USD10 billion in aid pledges made at the January 2023 flood relief conference, mostly in the form of project loans (USD2 billion in the budget).
The IMF Executive Board meeting to consider a USD 3 billion loan program for Pakistan will be held on July 12 according to the fund.
The authorities expect USD25 billion in gross new external financing in FY24, against USD15 billion in public debt maturities, including USD1 billion in bonds and USD3.6 billion to multilateral creditors. The government funding target includes USD1.5 billion in market issuance and USD4.5 billion in commercial bank borrowing, both of which could prove challenging, although some of the loans not rolled over in FY23 could now return. USD9 billion in maturing deposits from China, Saudi Arabia and the UAE will likely be rolled over, as in FY23.
Pakistan's current account deficit (CAD) has narrowed sharply, driven by earlier restrictions on imports and FX availability, tighter fiscal and economic policies, measures to limit energy consumption and lower commodity prices. Pakistan posted current account surpluses in March-May 2023, and we forecast a CAD of about USD4 billion (1% of GDP) in FY24, after USD3 billion in FY23 and over USD17 billion in FY22. Our forecast CAD is lower than the USD6 billion in the budget, on the assumption that not all of the planned new funding will materialise, constraining imports.
Liquid net FX reserves of the State Bank of Pakistan have hovered around USD4 billion since February 2023, or less than a month of imports, down from a peak of more than USD20 billion at end-August 2021. The collapse in reserves reflected large CADs, external debt servicing and earlier FX intervention by the central bank. We expect a modest recovery for the rest of FY24 on new external financing flows, although these flows will also lead to a renewed widening of the CAD.
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