ISLAMABAD: The International Monetary Fund (IMF) has lowered the projection of Pakistan’s gross external financing needs to $24.965 billion for the current fiscal year 2023-24, ie, 7.1 percent of GDP against its earlier projection of $28.361 billion which was 8.1 percent of the GDP.
The IMF in its report titled, “First review under the Stand-By Arrangement,” noted that the country’s external financing needs would be $22.245 billion in the fiscal year 2024-25.
The report noted that the SBA programme is fully financed and the reserve position at end-fiscal year 2024 is consistent with programme objectives, although risks remain exceptionally high. Over US $3 billion in commitments made at the time of the SBA request have already been delivered, with an additional US $1 billion in multilateral support expected by end-2023. Further assurances for bilateral support of US $0.7 billion were reconfirmed ahead of this review. However, the Islamic Development Bank is now likely to deliver only a small fraction of the US $1 billion pledged ahead of the SBA during the program period. Offsetting that, a debt rearrangement with a major bilateral creditor has generated amortization savings of around US $1.2 billion in both fiscal year 2024 and fiscal year 2025. Nonetheless, financing risks remain exceptionally high, arising from large public sector external rollover needs, a persistent current account deficit, a difficult external environment for Eurobond and Sukuk issuance, and limited reserve buffers in case of delays to anticipated inflows.
PIDE webinar: Economist talks of GDP decline during BJP rule
Pakistani authorities have stated that adequate financing from our international partners to support economic reform program was secured. Current projections suggest that with the policies outlined in this MEFP, gross external financing needs for fiscal year 2024 will amount to approximately US $25 billion (including the current account), of which about US $13.8 billion is amortizations of the public sector. Ahead of the SBA approval we secured US $5.6 billion in additional financing commitments from bilateral, multilateral, and commercial partners, of which over US $3 billion has already been disbursed. We have also secured commitments from these partners regarding US $7 billion in rollovers, US $1 billion in refinancing of maturing debt, and US $1.2 billion in amortization savings from a debt rearrangement covering some existing external loans. In line with program financing commitments, key bilateral creditors will at least maintain their exposure to Pakistan” they added.
Pakistan’s capacity to repay the Fund is subject to significant risks and remains critically dependent on policy implementation and timely external financing. The Fund’s exposure reaches SDR 5,972 million (or 294 per cent of quota and about 103 per cent of projected gross reserves at end-January 2024) with purchases linked to the review.
With completion of all purchases under the arrangement, it would peak at SDR 6,673 million in March 2024 (329 per cent of quota and about 102 per cent of projected gross reserves at end-March 2024). Exceptionally high risks-notably from delayed adoption of reforms, high public debt and gross financing needs, low gross reserves and SBP’s sizeable net FX derivative position, the recent decline in inflows, and sociopolitical factors-could jeopardize policy implementation and erode repayment capacity and debt sustainability. Restoring external viability is critical to ensure Pakistan’s capacity to repay the Fund, and hinges on strong policy implementation, including beyond the SBA.
Uncertainty about global economic and financial conditions, amid several successive shocks, adds to these risks. Adequate and timely execution of the firm and credible financing assurances from official creditors remains essential to mitigate these risks.
The SBA poses a number of enterprise risks which are broadly unchanged from the time of program approval. As the fourth largest GRA credit exposure, Pakistan represents a significant concentration risk, with GRA credit outstanding representing 30 per cent of fiscal year 2023 precautionary balances assuming full disbursement of the SBA.
Risks in capacity to repay are significant. Several factors help mitigate these risks including targeted macro-critical conditionality, phased access, burden sharing, adequate financing assurances for the program, including from key multilateral and official bilateral creditors, and assurances of broad political support for the program’s objectives and policies. Reputational and engagement risks could result from program disruptions due to partial implementation of policies necessary for adjustment or new measures not aligned with the program objectives, although the caretaker government’s ongoing commitment to strong policy implementation and timely completion of the reviews help mitigate these risks. Sociopolitical tensions could also create a challenging environment for program implementation.
Copyright Business Recorder, 2024
Comments
Comments are closed.