Why IMF lending still stalled?

ISLAMABAD: Reticence amongst some of the friendly countries in disbursing already pledged support, roll overs, as well as additional lending is a major reason for the stalled ninth review of the International Monetary Fund (IMF).

This was revealed to Business Recorder by well-informed sources while citing the criticality of disbursement of pledged external assistance for revitalizing the Fund programme.

The IMF’s end of mission press release dated 9 February 2023 categorically stated that ‘resolute financial support from official partners is critical for Pakistan to successfully regain macroeconomic stability and advance its sustainable development’.

The staff level agreement on the three-year Extended Fund Facility programme dated 12 May 2019 stipulated that “financing support from Pakistan’s international partners will be critical to support the authorities’ adjustment efforts and ensure that the medium-term program objectives can be achieved.”

And thenceforth each mandatory quarterly review international partners had assured the Fund that pledged assistance would continue till programme end (extended till end June 2023).

Staff-level pact with IMF anytime soon: MoS Aisha

The government’s budgeted total external assistance requirement of 36 billion dollars – 22 billion dollars for repayment of interest and principal as and when due, four to five billion dollars for balance of support, and 8 to 9 billion dollars for shoring up foreign exchange reserves.

Roll overs of around 5 billion dollars have been announced by friendly countries; however the additional lending of another 4.5 billion dollars was reportedly conditional on the success of the ninth review but informed sources now tell BR that there is some additional reticence in this support from some of Pakistan’s additional partners.

Last week while responding to queries by the media outside the committee room, Minister of State for Finance Ayesha Ghaus Pasha acknowledged that external financing was discussed with the Fund and added that “Our talks with friendly countries on external financing are ongoing and progressing and we are optimistic that things will move forward.”

Pakistan borrowed $200 million from foreign commercial banks during the first six months of the current fiscal year 2022-23 against the budgeted estimates of $7 billion. The country is expected to face shortfall under this head, after all rating agencies including Moody’s and Fitch downgraded the country’s rating which will raise the cost of borrowing.

The government has budgeted $2 billion from issuance of bonds for the current fiscal year, but according to sources this too may be a challenge to generate due to unfavourable market perceptions.

Another contentious issue between the IMF and the Pakistan authorities is on the applicability of additional surcharge of Rs 3.39 per unit, with the former insisting that this be a permanent increase while the government wants it to be applicable till the end of June this year. The Fund’s press release dated 9 February aims at “enhancing energy provision by preventing further accumulation of circular debt and ensuring the viability of the energy sector.”

According to the Power Division’s plan, already approved by the ECC and Federal Cabinet, additional surcharge of Rs 3.39 per unit will be recovered from consumers from March to June 2023 in addition to existing surcharge of Rs 0.43 per unit totalling it to Rs 3.82 per unit to recover Rs 2.83 billion.

However, after expiration of additional surcharge of Rs 3.39 per unit from June 30, 2023, new surcharge of Re. 1 per unit will be imposed from July 1, 2023 to be recovered along with existing surcharge of Rs 0.43 per unit, totalling to Rs 1.43 per unit.

The federal government has already filed Motion with Nepra in this regard, hearing of which is scheduled to be held on March 2, 2023.

According to officials privy to these decisions, Finance Division wants a more permanent recovery of additional surcharge of Rs 3.39 per unit along with Rs 0.43 per unit but the Power Division argues that they will comply with a revised Circular Debt Management Plan (CDMP) which has been approved by the IMF.

Total loans of Power Holding Limited (PHL) were Rs 800 billion end June 2022. To recover the mark-up portion of loans amounting to Rs 246 billion, there is already a surcharge Rs 0.43/ unit levied in the consumer bill which is not sufficient to cover mark-up charges of the total loans. The remaining mark-up is being paid through electricity generation collection and the same is added to the circular debt. As on December 31, 2022, around Rs 2.44 billion has been paid as interest charges from electricity generation portion.

Addition in CD due to PHL mark-up payments from own sources is projected to be around Rs 76 billion in FY-23. Considering the increasing trend of circular debt, the mark-up of Rs 76 billion is also required to be recovered from consumers (except non-ToU domestic consumers having consumption 300 units and private agriculture consumers) in four months’ time from March-23 to June-23 through an additional surcharge of Rs 3.39 per unit.

A widely expected monetary policy announcement of a raise of between 150 to 200 basis points is expected as part of the IMF’s prior condition and is unlikely to be opposed by Pakistan’s economic team leaders.

Copyright Business Recorder, 2023