IMF is likely to approve a bailout package later this month, the Pakistan finance minister said. File
Islamabad:
China, Saudi Arabia and the UAE have agreed to roll over cash-strapped Pakistan’s $12 billion debt for one year, as the International Monetary Fund (IMF) is likely to approve its $7 billion bailout package later this month.
After a meeting of the Senate Standing Committee on Finance yesterday, Pakistan Finance Minister Muhammad Aurangzeb told reporters that there was no delay in the IMF Executive Board meeting, which is going to take place by the end of this month to approve the $7 billion Extended Fund Facility, the Express Tribune reported today.
The Executive Board is scheduled to meet on August 28 to approve the $7 billion package, the report said, quoting government officials.
The development marks an end to the uncertainty over the timing of the Executive Board meeting, which was contingent upon the rollover of debts by Pakistan’s three traditional creditors, it said.
Aurangzeb said the $12 billion cash deposits by China, Saudi Arabia and the United Arab Emirates would be rolled over for one year, like last time. Earlier, he had said that the IMF had asked for the rollover for three to five years before the Executive Board meeting.
However, he clarified that the requirement was to secure the rollover for one year, but the government was trying to have these rollovers for three to five years. He added that the three bilateral creditors had agreed to roll the loans over on the existing terms and conditions.
The IMF announced a staff-level agreement for USD 7 billion last month, subject to the approval of the Executive Board and securing financing commitments from the bilateral and multilateral creditors.
The finance minister said there was no point in asking for an increase in the interest rates on these loans when the country’s foreign exchange reserves had strengthened compared to a year ago. The IMF, he added, had identified only a USD 3-5 billion financing gap over the three-year programme period, which was quite manageable.
“Pakistan has also received an offer from a foreign commercial bank but we are waiting for the IMF Board approval to ask the lender to cut the offered interest rates,” said Aurangzeb. The offer had come from a non-Gulf and non-Chinese commercial bank, he added, without disclosing the name.
A finance ministry official said that Standard Chartered Bank had offered a less than USD 400 million loan but it was asking for a double-digit interest rate that the government could not afford to pay. Aurangzeb said the government would wait for the IMF Board’s approval to get the commercial bank to cut its offered interest rates.
The finance minister said two important developments had taken place in the last few days, which showed that Pakistan was well on its way to achieving macroeconomic stability. He described the Fitch rating agency’s decision to improve Pakistan’s credit rating by one notch and the central bank’s decision to cut the interest rates by 1% as “very critical elements for achieving macroeconomic stability”.
When asked as to why Standard and Poor’s had not improved Pakistan’s CCC+ rating, the minister stated that raising a CCC+ rating to a B negative one would have been a big jump.
He hoped that the three rating agencies would improve Pakistan’s standing to B negative by the end of this year, a grade where it can venture into the international capital markets to float sovereign bonds at relatively lower rates than offered at the current CCC+ ratings.
The three international credit rating agencies have given below investment grade to Pakistani bonds due to their weak economic position and huge external financing requirements. However, Fitch last week improved the rating by one notch — from CCC to CCC+ — which was still below the investment grade.
The finance minister said the government was trying to issue the Panda bond in the Chinese markets and had engaged a Chinese financial adviser firm to complete the transaction either by the end of this calendar year or in early 2025.
Aurangzeb said the government was also contemplating hiring another Chinese financial adviser to secure the energy debt rollover. He said that Pakistan had requested up to a five-year extension in the energy debt, but it would take time before any agreement was reached.
He said that even the conversion of the Chinese power plants from imported to local coal would take at least two to three years.
The finance minister also said that to cut expenditures, the government had undertaken the privatisation programme and an exercise was ongoing to close ministries or merge them. “It is about time to right-size the federal government,” Aurangzeb said.
(This story has not been edited by The Hindkesharistaff and is auto-generated from a syndicated feed.)