WASHINGTON/ KARACHI/ISLAMABAD: The International Monetary Fund’s Executive Board will meet on Sept 25, where it is likely to take up and approve the new bailout programme for Pakistan.
The IMF staff reached a new 37-month Extended Fund Facility (EFF) arrangement with the Pakistani authorities in mid-July this year. This three-year-long $7 billion programme is subject to the IMF Board’s approval. “We are very happy that we can say now that the Board meeting is scheduled to take place on September 25,” Fund’s Communication Director Julie Kozack confirmed here on Thursday.
“This is following Pakistan obtaining necessary financing assurances from its development partners,” she said during a press briefing. “This new EFF arrangement, that will be subject to Board approval, follows the successful implementation of the 2023 nine-month Stand-by arrangement. Consistent policy making has supported economic stability in Pakistan, most notably a resumption of growth, a significant disinflation and significant increase in the country’s international reserves.”
Responding to another question, she maintained that it was critical for the Pakistani authorities to recognise that consistent implementation of the new EFF was going to be necessary to successfully and sustainably stabilise the economy and pave the way for stronger and sustainable growth. “Why is this so important to have stronger and sustainable growth because this is how an economy creates jobs; it creates opportunities especially for young people or people who are looking to improve their standard of living; so this is what the programme aims to achieve,” she added.
The experience with the Stand-by Arrangement that the IMF had with Pakistan in 2023 does demonstrate that the authorities have a commitment; it showed that they had ownership and that they were able to implement sound policies that could help the economy recover, she said adding that “the new programme is really aiming to build on this momentum and to ultimately create a sustainable environment for strong growth and job creation in Pakistan, ultimately for the benefit of the Pakistani people so they can reach their aspirations.”
Meanwhile, after securing confirmation on rollover of $12 billion, an additional external financing gap of $2-$2.5 billion from Saudi Arabia in the shape of an oil facility and commercial financing from foreign banks, Pakistan is in the process of signing a Letter of Intent (LoI) and dispatching it to the IMF for consideration of its Board for getting approval on $7 billion EFF.
The breakthrough was achieved in the aftermath of getting confirmation of $12 billion from the KSA, China and the UAE to the tune of $5 billion, $4 billion and $3 billion, respectively. Then the IMF identified external financing gap of $2 to $2.5 billion and confirmation was secured from the KSA in the shape of Saudi Oil Facility as well as ITFC facility of $400 million from IsDB and remaining from Standard Chartered Bank and other Middle East-based commercial banks. Now the signed LoI from Finance Minister Mohammad Aurangzeb and Governor SBP will be dispatched to Washington for making a request to consider approval of $7 billion under EFF by end of the ongoing month.
Earlier, Pakistan expressed optimism that the IMF executive board would approve its new $7 billion loan programme this month, as the country has secured all necessary financial assurances required for the loan approval.
The government arranged over $2 billion in external financing to address the funding shortfall required to meet the IMF conditions, State Bank of Pakistan (SBP) Governor Jameel Ahmad said during an analyst briefing after revealing the monetary policy on Thursday.
The SBP governor is hopeful that there are no further hurdles and that Pakistan’s case will be presented to the IMF board during the Sept 25 meeting. Furthermore, the governor stated that any further funding shortfalls were not anticipated, given that the EFF approval would unlock additional financing inflows and improve the balance of payments position.
The governor informed analysts that the central bank’s foreign exchange reserves are projected to reach $12 billion by March 2025 and $13 billion by June 2025.
As of March 2025, the total external debt repayments amount to $14.1 billion. Out of this, $8.3 billion will be rolled over or refinanced, and $5.8 billion will be paid off, according to the SBP. As of Sept 12, the SBP has repaid $4 billion, including $2.3 billion in rollovers and a net payment of $1.7 billion.
In an analyst briefing session, Ahmad announced that the central bank would release three new datasets in response to requests from various participants. These datasets will include information on the SBP market intervention in the forex market, SBP reserves forecast and external debt repayment projections for the next six months. The central bank purchased $573 million from the market in June, and this dataset will be released monthly with a lag of three months.
The governor also stated that the SBP will soon transfer dividends of over Rs2.5 trillion to the government from its fiscal year 2024 profits. He highlighted that the external repayments are evenly spread over the next six months, with no significant lumpy payment schedule ahead apart from rollover amounts. According to him, the momentum of remittances should continue due to a lower spread between formal and informal markets.
Meanwhile, the SBP cut its benchmark interest rate for a third consecutive meeting on Thursday in an effort to boost economic growth amid decreasing inflation. The SBP lowered the policy rate by 200 basis points, higher than market expectations of 150 bps. After this rate drop, the interest rates hover at 17.5 per cent, the lowest level since January 2023.
The anticipated move follows August’s single-digit inflation, which was caused by a high base effect, declining food prices swiftly, and a comfortable external position. “Both headline and core inflation fell sharply over the past two months,” said the SBP in a monetary policy statement.
“The pace of this disinflation has somewhat exceeded the committee’s earlier expectations, mainly due to the delay in implementation of planned increases in administered energy prices and favourable movement in global oil and food prices,” it added.
“At the same time, the committee acknowledged the inherent uncertainty related to these developments, which warranted a cautious monetary policy stance. In this regard, the committee underscored the importance of the tight monetary policy stance in driving the sustained decline in inflation over the past year.” Headline inflation slipped to 9.6 per cent in August from 12.6 per cent in July, continuing its downward trend, while core inflation fell to 11.9 per cent from 14.1 per cent.
The SBP took notice of a number of significant events that have transpired since its previous meeting and that could impact the macroeconomic picture, such as the steep decline in global oil prices, despite their continued volatility. Despite weak official foreign exchange inflows and ongoing loan repayments, the SBP’s foreign exchange reserves as of September 6 were approximately $9.5 billion. Furthermore, since the previous MPC meeting, there has been a discernible fall in the secondary market yields of government securities. Finally, while consumer confidence has somewhat declined, corporate confidence and inflation forecasts have both increased in the most recent pulse surveys. Finally, the FBR tax revenue collected in July and August was lower than the target.
Regarding interest rates, experts applauded the SBP’s cautious stance, given the country’s ongoing struggles to obtain final approval from the International Monetary Fund for its new $7 billion loan programme.
On the other hand, a decrease in petrol price has been estimated at Rs11.71 per litre and diesel Rs11.91 per litre from Sept 16, 2024 for the next fortnight because of the plunge in the cost of Brent crude by 4pc to $68.99 a barrel in the global market representing a significant break below the key $70 support level.
“The oil supply from Libya which earlier remained at a halt, has now started pouring into the international market causing oversupply in the market. In addition, the recession in the USA because of uncertainty surfaced there on account of the Presidential elections and less consumption of POL products in the Chinese market in the wake of recession in the housing industry, has placed a cut in the overall growth of demand which is why the oil price tumbled in the international market,” official sources told The News.
However, the incumbent regime facing a Rs99 billion deficit in revenue in two months, July and August of the current financial year, is most likely to increase the petroleum levy to reduce the shortfall. According to the official sources, the government may reduce the cut in relief in POL price by Rs5-7 per litre. The government has the power to further increase the petroleum levy by Rs10 to Rs70 per litre from the existing Rs60 per litre on petrol and diesel. Keeping in view the substantial decrease in POL prices in the international market, the cash-strapped government may increase the PL by Rs5-7 per litre.
However, if the government does not escalate the PL, then the petrol price may slide by Rs11.71 per litre from existing prices of 259.10 per litre and the new price may stay at Rs247.39. Likewise, the price of high speed diesel (HSD) may decline by Rs11.91 per litre and settle at Rs250.84 per litre from the existing Rs262.75 per litre.
The decrease in kerosene oil price has been estimated at Rs8.24 per litre and this is how its new price may settle at Rs161.38 per litre. The existing Kerosene oil price is Rs169.62 per litre. The price of Light Diesel Oil (LDO) may also go down by Rs9.86 per litre to Rs144.19 from Rs154.05 per litre.
APP adds: Prime Minister Shehbaz Sharif Thursday lauded the announcement by the State Bank of Pakistan to slash the policy rate by 2pc, calling it a step to boost investors’ confidence.
“The reduction in the policy rate is welcoming for the national economy. This will help boost investors confidence in Pakistan’s economy, thus increasing investment,” the prime minister said in a statement issued by the PM Office.
The swift decline in the inflationary trend led to the reduction in policy rate, he said and expressed the hope for further decline in inflation in the coming months.