Pakistan in turmoil, IMF's $6 billion bailout programme on hold

According to a Pakistan media report, Islamabad will have to manage $5 billion as a bridge financing gap till June to avert a full-fledged balance of payment crisis and manage depleting foreign currency reserves in case the programme continues to be on hold.
Pakistan prime minister Imran Khan.
Pakistan prime minister Imran Khan.
Published on Apr 05, 2022 12:51 PM IST
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By | Written by Aryan Prakash

With Pakistan in political turmoil, the economic woes of the country have multiplied manifold. The International Monetary Fund's $6 billion programme has been stalled, with no possibility of the next tranche's approval in the ongoing month, Pakistan daily The News reported.

Now, Pakistan will have to manage $5 billion as a bridge financing gap till June to avert a full-fledged balance of payment crisis and manage depleting foreign currency reserves in case the programme continues to be on hold.

After the IMF programme hit the roadblock, Pakistan's other creditors like the World Bank and The Asian Development Bank stopped the budgetary support and attached approval with the IMF's letter of comfort, the website reported.

The Pakistan officials said that only three options are left now which include negotiation for a consensus on the memorandum of financial and economic policies, wait for the elections till July and then extend the IMF programme beyond September or scrap the existing programme and negotiate a fresh deal with the IMF with the new government.
 

Nevertheless, Pakistan will have to manage $5 billion for the next few months for averting a crisis like situation. “A financing gap of $2 billion would emerge from the IMF as Islamabad envisages external financing from the Fund through approval of seventh and eighth reviews under $6 billion Extended Fund Facility (EFF). Pakistan will have to manage another $3 billion from bilateral donors to bridge the yawning financing gap,” a top official told the Pakistan media outlet.

It is important to note that Pakistan and the IMF were recently holding talks for the completion of the outstanding 7th Review and release of $960 million tranche, which now seems impossible to be accomplished in this month.

“The IMF looks to continue its support to Pakistan and, once a new government is formed, we will engage on policies to promote macroeconomic stability and enquire about intentions vis-a-vis program engagement,"IMF’s Resident Chief, Esther Perez Ruiz said while maintaining that there were no plans to suspend the programme.

But this is not the first time when Pakistan has faced such a challenge. Ahead of the 2018 elections, the IMF had told Pakistan they would negotiate deal with the new government. Then finance minister Shamshad Akhtar had to manage $2 billion from China to meet the balance of payment conditions.

According to the The News, the foreign currency reserves are dwindling and now stand at a meagre $12.04 billion as of March 25. The balance of payment crisis will be knocking at the doors during the elections if the current account deficit continues to escalate.

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