IMF urges bilateral creditors to maintain exposure to Pakistan

ISLAMABAD: The International Monetary Fund (IMF) has urged all key bilateral creditors to maintain their exposure to Pakistan in line with Extended Fund Facility (EFF) programme commitments, as the country’s gross external financing needs have been projected at $30.757 billion for fiscal year 2022-23 which is 8.8% of GDP.

However, Pakistani authorities have projected the gross external financing needs for fiscal year 2023 at approximately $33 billion (including the current account), of which about $22 billion is amortization to multilateral and bilateral official, as well as, commercial creditors.

The IMF in its report titled “seventh and eighth reviews under the extended fund facility” projected Pakistan gross external financing needs at $36.621 billion for 2023-24, i.e., 9.2% of GDP and $35.717 billion for 2024-25, i.e., 8.4% of GDP.

The report noted that financing commitments from bilateral and multilateral partners will help cover public gross external financing needs in fiscal year 2023 and until the newly proposed end of the program in June 2023.

Nonetheless, financing risks remain exceptionally high arising from large public sector external rollover needs, the still sizable current account deficit, difficult external environment for Eurobond issuance given recent downgrades and high spreads, and limited reserve buffers to help cover the financing needs in case of delays in scheduled inflows. Firm commitments of full program financing are in place for the next 12 months.

The report noted that the authorities continue engaging external creditors to secure financing to meet the programme debt sustainability objectives. In late-2021 the authorities secured a $3 billion loan from Saudi Arabia that relieved financing pressures and a deferred oil financing facility ($1.2 billion) that became operational in fiscal year 2022 third quarter (Q3).

China has maintained its exposure by renewing (and augmenting) the $4.5 billion swap agreement ($3 billion at the time of EFF approval), as well as, by renewing maturing commercial loans, though some at shorter maturity and with delays in the roll-over process creating uncertainty in the marketplace.

Moreover, the deposits through China’s State Administration of Foreign Exchange stand at $4 billion. Nonetheless, near-term financing risks remain elevated, reflecting the large size of public sector amortization needs. To ensure that external financing needs are covered the authorities are seeking additional financial support from their traditional bilateral partners.

Pakistani authorities informed the Fund that current projections suggest that with the policies outlined in the Memorandum of Economic and Financial Policies (MEFP), the gross external financing needs for fiscal year 2023 will amount to approximately $33 billion (including the current account), of which about $22 billion is amortization to multilateral and bilateral official as well as commercial creditors.

To close this gap, the authorities stated they have secured $7 billion as rollovers of existing and $4 billion in additional financing commitments from bilateral, multilateral, and commercial partners. In line with programme financing commitments, key bilateral creditors have at least maintained their exposure to Pakistan, it added.

Copyright Business Recorder, 2022