Pakistan seeks $1bn from IMF climate change fund

WASHINGTON: Pakistan is targeting around $1 billion in a formal request for funding from the International Monetary Fund (IMF) facility that helps low and middle income countries manage external shocks. “We have formally requested to be considered for this facility,” Finance Minister Muhammad Aurangzeb said in an interview on the sidelines of IMF/World Bank autumn meetings in Washington.

The IMF had already agreed to a $7 billion bailout for Pakistan and has further funding available through its Resilience and Sustainability Trust (RST). The RST, created in 2022, provides long-term concessional cash for climate-related spending, such as adaptation and transitioning to cleaner energy.

Pakistan is also in talks with the Asian Infrastructure Investment Bank (AIIB) for credit enhancement for a planned Panda bond, with an initial issue of $200-250 million, Aurangzeb said. A Panda bond would be Pakistan’s first foray into China’s capital markets. Aurangzeb said they were talking to “a few other institutions” in addition to the AIIB for credit enhancement.

Issuing in the world’s “second largest and the second deepest” capital market, Aurangzeb said, was the key aim, rather than a particular issuance size. “From our perspective it is diversification of the funding base,” Aurangzeb said, adding: “Even if the inaugural issue is not significant in size, for us it is important that we print that and of course then we can keep it on tap.”

Meanwhile, talking to AFP, the minister for finance and revenue said that Pakistan has achieved macroeconomic stability and now the country’s economy is moving towards attaining its economic goals. “In May and June on the back of this macroeconomic stability and building up on our reserves, we paid more than $2 billion to our existing international investors,” he said.

Aurangzeb said Pakistan had been behind on existing profit and dividend repayments when the current government took office and had taken steps to remedy that after making progress on macroeconomic stability. He said that alongside privatising state-owned enterprises (SOEs), Pakistan’s IMF deal also rests on increasing its tax base, and reforming of the country’s power sector. Aurangzeb told AFP there was a common theme between all the three major issues.

Pakistan is hoping to finalise the delayed privatisation of its flag carrier and the outsourcing of Islamabad’s international airport in November, the minister said. The finance minister said the five-month delay was down to two factors: ensuring macroeconomic stability and doing proper due diligence of the interested parties. “The reality is, when any foreign investor comes in, or even the local investor who is going to put in a substantial amount of money, they want to ensure that the foundation is there,” he said, referring to macroeconomic factors.

Aurangzeb noted that potential bidders for both PIA and Islamabad airport also required scrutiny, another factor in the delay. “Therefore, it’s ultimately the cabinet which approved the extension in the timelines so people can do their due diligence before they make these submissions,” he said.

The country came to the brink of default last year as the economy shriveled amid political chaos following catastrophic 2022 monsoon floods and decades of mismanagement, as well as a global economic downturn, he said. The minister said that inflation peaked at 38 percent, but has since dropped to less than seven percent, after the central bank maintained sky-high interest rates amid other government tightening measures, including import bans to preserve foreign exchange.

Aurangzeb touted progress on the country’s current account deficit and the stabilisation of Pakistani rupee, which has depreciated against the US dollar by about 65 percent since 2020. “In May and June on the back of this macroeconomic stability and building up on our reserves, we paid more than $2 billion to our existing international investors,” he said.

Alongside privatising state-owned enterprises (SOEs), Pakistan’s IMF deal also rests on increasing its tax base, and reforming of the country’s power sector. Aurangzeb told AFP there was a common theme between all three major issues. “Tax, power, SOE: There’s leakage, there’s theft, there’s corruption, right?” he said. “And we have to deal with all of that.”

But he dismissed media reports that the government was not serious about broadening its tax base, saying that the tax take had risen by 29 percent in the last fiscal year, which overlapped with a prior caretaker government, and was targeted to rise by a further 40 percent in the current fiscal year. “People who are not paying up, they need to start paying for the simple reason that we have reached a saturation point of the people who are paying,” he said. “The salaried class, the manufacturing industry, reached a saturation point. And this cannot go forward,” he added.

The government was also committed to doing a better job of taxing certain sectors of the economy, he said, naming real estate, retail, retail distributors and agriculture.

Meanwhile, the minister for finance and revenue had a luncheon meeting with the leadership and members of the US-Pakistan Business Council (USPBC). During the meeting, Aurangzeb acknowledged the USPBC’s contributions in deepening trade and investment ties between the two countries and told the group that more than 80 American enterprises in Pakistan was a testimony to the profit potential of the 240 million-strong market.

He invited US firms to benefit from the government’s investment-friendly policies and one-window facility provided by the Special Investment Facilitation Council, (SIFC). The minister also recalled the PM’s invitation for the USPBC to bring a delegation to Pakistan this year, providing them with the opportunity to explore mutually beneficial partnerships in Pakistan.

According to a Ministry of Finance statement, during his visit, Aurangzeb also attended a series of investor fora organised by the Citibank, Standard Chartered and JP Morgan, where he briefed them about the performance of the economy for the last fiscal year. He highlighted important reforms in the taxation, energy, SOEs’ privatisation and right-sizing of the government. The minister emphasized on “the role of the provincial governments in “increasing the tax-to-GDP ratio and the National Fiscal Pact signed by the federal government.