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Things are slowly moving towards stabilization.The long pending IMF reviews are inching towards completion. Seeing that the money from China which was expected to arrive ‘very soon’ since April is finally credited. Talks with friendly countries may start soon to get support. The key is the IMF. Everything else will fallin line.

The government has received Memorandum of Economic and Financial policies (MEFP) from the IMF on combined 7thand 8th review. That is good. But there might be some steps needed before the Staff Level Agreement (SLA) is done. This may take a week or so. Then another couple of weeks before the IMF meeting. Expected earliest arrival of $2 billion from the IMF is by the end of July.

Markets know these gaps. That is why there is no jubilation in the currency, stock, money, and international bonds markets. The wait and see continues. The uncertainty and false hopes created by the sitting government in the first moth or so have made the market participants cautious. The government is now realizing the need of the reforms and steps being asked by the IMF. Earlier, the government was in denial. Now they are at the acceptance stage.

The SBP needs to build reserves. However, the financing gaps exists. The government needs to pay around $21 billion in debt servicing (principal and interest) in the next 12 months. Not all of it can be rolled over. There are around $5 billion bonds and Sukuk maturing. These are to be fetched freshly from the international bond market. Then the rollover of usual loans is sometime painful. Case in hand in Chinese rollover. The government got RMB 15 billion (roughly $2.3bn) at similar terms and better rate than the previous deal. But it took two months to renegotiate it.

And that could only happen, once the government has reached an agreement with the IMF on the budget numbers. And now the friendly countries from Middle East may chip in too. The writing is very much on the walls that there is nothing from anywhere without the IMF.

The authorities have internalized it. And they need all the money to build up reserves. There could be $12 billion required to fund the current account deficit (assuming a deficit of $1bn a month). This is in addition to $21 billion. The government needs to cut down on imports by slowing down the economy. The country has avoided the situation of default (like what has happened in the Sri Lanka). However, more is required to be out of the woods.

Expect real steps to cut down imports. Not an eyewash like what the government did in early days. Then the federal government is required to have MOUs with the provinces on attaining the budgeted provincial surplus. KP is not doing it. The government has to have Punjab and Sindh on board. Then the Petroleum Levy must be implemented in stages to reach the required limit.

The petroleum prices may increase further. Load shedding may continue as the government cannot afford to import expensive coal and LNG (on spot) at current rates. Electricity and gas tariffs are going to move up. 2022-23 is going to be tough year.


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