Pakistan has been requested to arrange $6 billion in external financing by the IMF, which has withheld a portion of the bailout package for months.
GeoTV reported on Saturday that the International Monetary Fund (IMF) has sought additional financing guarantees from Pakistan in order to release a portion of the $1.1 billion fund following assistance confirmations from Saudi Arabia and the United Arab Emirates. Pakistan has been requested to arrange $6 billion in external financing by the IMF, which has withheld a portion of the bailout package for months.
Based on the assumption that the country’s current account deficit would remain approximately $7 billion throughout the current fiscal year, the $6 billion financing gap had been calculated. Islamabad has so far been able to secure commitments of $2 billion from Saudi Arabia and $1 billion from the United Arab Emirates, bringing the total amount required down to $3 billion.
For the IMF and World Bank spring meetings, a Pakistani finance ministry and central bank delegation is currently in Washington. In addition, they are having discussions about reviving the loan program with representatives of the global lender.
According to Nathan Porter, the IMF’s Mission Chief in Pakistan, there was agreement among the Pakistani delegation and IMF staff and management on the need to maintain robust policies and secure sufficient financing to support the authorities’ implementation efforts.
“The IMF is supporting these endeavors and anticipates getting the vital funding confirmations at the earliest opportunity to prepare for the effective finishing of the ninth Outside Asset Office audit,” he said.
This came on the same day that Prime Minister Shehbaz Sharif stated that his government had met all of the requirements imposed by the global lender and that now that the UAE and Saudi Arabia had provided financial assurances, there was no reason for the staff-level agreement to be delayed.
Sharif asserted that prior to signing a staff-level agreement with Islamabad, the IMF had stipulated that it would require funds from friendly nations. He stated, “We put forth an effort of one and a half months to first have a rollover of $2 billion from China, then $3 billion from Saudi Arabia and the United Arab Emirates, thus meeting the final condition of the IMF.”
Ishaq Dar, Pakistan’s finance minister, has stated that the country is close to signing the agreement with the IMF. However, Pakistani economic commentator and former banker Yusuf Nazar predicted that Islamabad would not reach a staff-level agreement with the IMF within the next few weeks.
He stated, “I maintain my view that Pakistan is unlikely to reach staff level agreement with the #IMF in the next few weeks, despite statements from the minister of finance.” The program closes in June and Pakistan should look for another one however even the bygone one has not been finished at this point. It requires at least $3 billion more immediately. I don’t think it will happen before June or within the next few weeks.”
Pakistan is nearer than any time in recent memory to turning into a ‘zombie’ state, cautions ex-govt consultant
Sakib Sherani, who advised the Ministry of Finance on economic matters from 2009 to 2010, compared Pakistan’s current situation to Lebanon’s.
A former government advisor issued a warning on Thursday that Pakistan, which has been experiencing the worst economic crisis in decades, is getting closer to the edge and could become the next Lebanon. Sakib Sherani, who advised the Ministry of Finance on economic matters from 2009 to 2010, compared Pakistan’s current situation to Lebanon’s. He stated that Lebanon has endured decades of rivalry among international and regional power brokers, warring power centers, and corrupt, factionalized elites. According to him, the outcome has been a hollowed-out economy, deindustrialization, capital flight and brain drain, endemic shortages, widespread poverty, societal breakdown, and social chaos in addition to a fully-fledged, bloody civil war.
“Unfortunately, Pakistan also finds itself on the brink of a situation that is very similar to a dystopia. Sherani wrote in an editorial for Dawn that “the country has been a weak, ‘at-risk’ state for a long time, but its cognitively inert elites have been too busy infighting or looting to notice.” He began his article by discussing the US banking crisis. He stated that the current events in the United States have brought back attention to “zombie” banks, which are barely surviving financial institutions that have significant unrealized losses on their thinly capitalized balance sheets.
Sherani was the chief economist at ABN AMRO Bank NV from 2000 to 2009 before joining the government. The economist commented on Pakistan’s economic crisis, ” Can “zombie” nations exist, just like zombie companies and banks? countries where state breakdown is advanced, the economy has collapsed, debts and obligations to foreigners cannot be serviced, and essential import requirements can only be met by handouts and bailouts from a dwindling pool of friendly countries.
Pakistan meets almost all of Sherani’s requirements. Due to a lack of forex reserves, Islamabad is unable to pay its debts, has restricted imports, and has reached out to friendly nations to avoid default. Pakistan will have to restructure its debts at some point, according to economists in the country. They believe that even the anticipated $1.1 billion installment from the IMF will not be sufficient.
Sherani suggested that Pakistan was only in principle sovereign and independent. He asserted that a significant portion of the populace was dissatisfied with the machinations of a self-serving, corrupt elite and was looking for a long-term escape here. Additionally, wealthy individuals and businesses were actively moving their capital abroad.
According to the financial advisor, Pakistan’s economy was in a tailspin as many industries and businesses were shutting down, many of them permanently. He asserted that the situation has led to widespread unemployment, capital flight, and a brain drain from the nation. Related to generally high expansion and the scriptural floods, there has been a sharp ascent in the positions of poor people. “Millions face outright destitution, while many are experiencing pauperization,” he wrote.
In March, Pakistan’s inflation reached its highest level since 1965, at 35.4%. The country’s growth forecast was reduced to 0.5% from 2% earlier this week by the IMF. Inflation of 27%, the second highest in the subcontinent after Sri Lanka, was also predicted by the global institution for this year. Pakistani individuals and businesses are being impacted by import restrictions and high inflation.
Sherani stated, “The bad news could get much worse.” Pakistan’s banks are the next target of the economic crisis, which has already devastated the real economy. This is the worst sign of an economic crisis because it could block the whole economy for years.
“First, from mounting losses on their credit as well as investment portfolios due to a sharp increase in non-performing loans and interest rates respectively,” the former advisor stated, “second, from second, the possibility of the system’s largest borrower going “kaput” (bankrupt).”
Sherani provided evidence to support his claims. He stated that the government’s borrowing from the banking system now accounted for nearly 70% of the system’s total lending and 92% of the deposit base. However, these percentages were 62% and 81%, respectively, ten years ago. For lenders to be able to lend to the state at each government securities auction, the central bank needs to inject a significant amount of liquidity in advance.
Sherani stated, “This is an untenable situation, which is being made worse by the political impasse.” The crucial question is, in light of Pakistan’s unprecedented challenges and pressures across multiple fronts, Can the dire circumstance be reversed, or is it already too late?”
Sherani, who also worked as an advisor at Eurasia Group, a political risk consulting firm, stated that the window of opportunity to avoid the worst outcome had narrowed. We are getting closer and closer to the edge every day. Assuming Pakistan is to stay away from Lebanon’s destiny, an opportunity to act has almost run out,” he said.