Pakistan expected to secure second IMF tranche despite missed deadlines

Pakistan is poised to secure the next installment of its $3 billion stand-by arrangement (SBA) with the International Monetary Fund (IMF), despite potential delays in meeting certain deadlines, as indicated in a recent brokerage report. 

Topline Securities, in its analysis, acknowledged that Pakistan had achieved the prescribed targets for net international reserves, net domestic assets, and foreign currency swap/forward positions as of the close of June 2023.  

However, it also pointed out that Islamabad had fallen short in meeting the targets for the primary deficit, which assesses the fiscal balance excluding interest payments as well as external public debt disbursements. 

Furthermore, the report highlighted that Pakistan had yet to implement a gas price adjustment agreed upon with the IMF, which was a prerequisite for completing the second review of the program. 

Pakistan initially received a $1.2 billion installment from the IMF’s stand-by arrangement in July after the IMF’s Executive Board approved the bailout package to stabilise the country’s economy.  

Under the agreement, the remaining $1.8 billion is set to be disbursed in two tranches following reviews in November and February. 

The current IMF programme outlines nine performance criteria, four indicative targets, and ten structural benchmarks for the upcoming review. 

In a briefing for analysts on September 14, the Governor of the State Bank of Pakistan confirmed that all quantitative performance targets related to the central bank, including net domestic assets, swaps, and net international reserves, had been met.  

Similarly, the Finance Ministry expressed its commitment to maintaining fiscal discipline and achieving primary balance targets. 

Despite challenges and some unmet targets related to external funding, the primary deficit, gas price adjustments, etc., Topline Securities remains optimistic about Pakistan’s chances of receiving the next IMF tranche.  

They believe that if the government can effectively manage the current account deficit to around $4 billion for FY2024, as opposed to the projected $6.5 billion, it can meet its financing requirements, particularly given the difficulty of commercial borrowing. 

The Ministry has projected gross external financing requirements of $28.4 billion for the current fiscal year, including the current account deficit of $6.5 billion, aligning with IMF projections outlined in the latest country report. 

Regarding funding sources, the government plans to secure a total of $11 billion, with $5 billion coming from China and $6 billion from Saudi Arabia, primarily in the form of rollovers and an oil facility with deferred payments, according to Topline’s report.  

The government also anticipates around $6.3 billion from multilateral creditors, including the World Bank, Asian Development Bank, Islamic Development Bank, and Asian Infrastructure Investment Bank.