IMF nod for Pakistan’s loan may get delayed till October

ISLAMABAD: Pakistan’s loan approval of $7 billion from the IMF’s Executive Board might be delayed till October 2024 if Islamabad fails to secure external financing of $2 billion from bilateral and commercial lenders within the ongoing week.

Top official sources confirmed to The News on Monday that Pakistan would have to dispatch its signed Letter of Intent (LoI) to the IMF’s Executive Board with a request to consider approval of $7 billion under 37 months EFF with the written commitment that the Government of Pakistan would comply with all agreed condition of the Fund programme.

So far, Pakistan does not exist on the IMF’s Executive Board agenda till September 18, 2024. Islamabad is making last-ditch efforts to secure assurances from the bilateral creditors on $2 billion financing gap, identified by the IMF, without a visible success. If this ongoing week is passed without securing confirmation, then the possibility of getting approval from the Fund’s Executive Board on $7bn EFF will diminish.

Now there is another looming danger for Pakistan’s struggling economy with an emerging scenario that if the approval of the IMF programme gets delayed till October and the third week of next month commences, then the first quarter (July-September) data might start appearing so in such situation IMF staff might come up with a prescription of the unveiling of the mini-budget if slippages on fiscal front surfaced. There are potential and serious risks because of failing to achieve FBR’s tax and non-tax collection targets. For non-tax revenue collection, the potential risk will be decreased consumption of POL products, posing serious risks in achieving the petroleum levy target envisaged for the current fiscal year. The government envisaged collection of Rs1.281 trillion through petroleum levy, but decreased consumption of POL in the domestic market might result in surfacing shortfall in achieving the non-tax revenue target.

Now the internal working of the FBR is projecting that the FBR may face a revenue shortfall of Rs200 to Rs220 billion for the first quarter (July-September) and some kind of rough estimates would appear around September 18 to 20 when the sales tax returns would be made available. If there is a substantial revenue shortfall, then there would be no other option but to curtail expenditures in a big way.

Now Ministry of Finance is hoping that the upcoming Monetary Policy Committee (MPC) may consider slashing the policy rate by 150 to 200 basis points bringing down from 19.5 per cent to 18 or 17.5 per cent in the next meeting scheduled to be held on Sept 12, 2024. In the wake of the possibility of the reduced policy rate, the biggest ticket item on the expenditure head might witness some reduction in the coming months, a required breathing space for the finance ministry.

This scribe sent out questions to the Ministry of Finance to get an official version, but all top officials preferred to keep mum. When contacted one top official replied that they were expecting good news within this ongoing week on external financing issue.