Pakistan to ask for new longer-term bailout during IMF review

© Reuters. FILE PHOTO: International Monetary Fund logo is seen outside the headquarters building during the IMF/World Bank spring meeting in Washington, U.S., April 20, 2018. REUTERS/Yuri Gripas/File Photo

By Asif Shahzad and Ariba Shahid

ISLAMABAD (Reuters) -The International Monetary Fund (IMF) will hold a second and last review of Pakistan’s $3 billion stand-by arrangement (SBA)this week, the finance ministry and the IMF said on Wednesday, during which the South Asian nation will ask for a new longer-term bailout.

The four-day review begins on Thursday, the ministry said in a statement, and if successful, will release a final tranche of around $1.1 billion secured by Islamabad under a last-gasp rescue package last summer, averting a sovereign debt default.

“Pakistan has met all structural benchmarks, qualitative performance criteria and indicative targets for successful completion of the IMF review,” the ministry added, hoping for a successful IMF staff level agreement after the appraisal.

“The mission will be focused on (the) completion of Pakistan’s current SBA-supported program, which ends in April 2024,” the fund said through a spokesperson.

Prime Minister Shehbaz Sharif has already directed his finance team, headed by newly installed Finance Minister Muhammad Aurangzeb, to initiate work on seeking an Extended Fund Facility (EFF) after the standby arrangement expires on April 11.

Aurangzeb told reporters on Tuesday that Pakistan would use the opportunity during the IMF review to make the case for a larger, long-term programme, according to the Dawn daily.

The global lender has said it will formulate a medium-term programme if Islamabad applies for one.

The government has not officially stated the size of the additional funding it is seeking through a successor programme.

Pakistan will be “very keen to start discussions on another EFF with them during these talks,” the finance minister said, adding further talks will take place at the IMF and World Bank’s spring meetings in April in Washington.

Sajid Amin Javed, Deputy Executive Director at Sustainable Development Policy Institute, said Pakistan needs a new IMF program immediately to manage external financing needs and economic recovery.

“It is encouraging to see that the new government is clear, unlike the past two experiences where engagements with IMF were delayed due to political baggage,” he added.

Aurangzeb aims to bring stability to a country plagued by crippling boom-bust cycles that have led to more than 20 IMF bailout programmes in the past.

The debt-ridden economy, which shrank 0.2% last year and is expected to grow around 2% this year, has been under extreme stress with low reserves, a balance of payment crisis, inflation at 23%, policy interest rates at 22% and record local currency depreciation.

Ahead of the stand-by arrangement, Pakistan had to meet IMF conditions including revising its budget, and raising interest rates and the price of electricity and gas.

The IMF also got Pakistan to raise $1.34 billion in new taxes. The measures fuelled all-time high inflation of 38% year-on-year in May.