Extended Fund Facility: Pakistan receives Letter of Intent from IMF

In yet another development on the International Monetary Fund (IMF) front, Pakistan has received a Letter of Intent (LoI) from the Washington-based lender, moving closer to disbursement of the next tranche for the combined seventh and eighth review, reported Aaj News on Friday.

Pakistan would sign off on the LoI and send it back to the IMF, said the report, adding that the IMF Executive Board approval is now the final step for revival of the stalled Extended Fund Facility (EFF).

Earlier this month, the IMF announced that Pakistan has completed the last prior action for the combined seventh and eighth review following the increase in petroleum development levy (PDL), adding that the board meeting is tentatively planned for late August once adequate financing assurances are confirmed.

IMF wants assurance on Saudi funding to Pakistan before it disburses loan: report

Back in July, the IMF team reached a staff-level agreement (SLA) with Pakistan authorities for the conclusion of the combined seventh and eighth review.

After approval of the Executive Board, “about $1,177 million (SDR 894 million) will become available, bringing total disbursements under the programme to about $4.2 billion,” the IMF had said in its statement then.

However, it was reported last month that the IMF was also looking to assess commitment of other sources to financing Pakistan before the multilateral lender disburses fresh funds to the country. The Washington-based lender wants to ensure Pakistan does not have a financing gap after the IMF loan.

The IMF funding, along with other financing, is crucial for Pakistan, which is desperately seeking dollar inflows in the face of falling foreign exchange reserves.

Forex reserves held by the State Bank of Pakistan (SBP) fell another $555 million, clocking in at an alarming level of $7.83 billion as of August 5, 2022, as policymakers in the country continued to scramble over securing dollar inflows and provide breathing room to the economy.

The IMF programme revival is also vital for the local currency, which saw its worst month in over 50 years in July.

However, as progress is made over the IMF programme, the rupee has appreciated, and was hovering around the 215 mark on Friday, an over 11% gain since it hit its all-time low last month.