Islamabad, Aug 24: Due to a $2–$3 billion shortfall in outside funding, Pakistan has asked the Kingdom of Saudi Arabia (KSA) for more deposits and has contacted commercial banks in the UAE to obtain guarantees that it will meet the IMF’s requirements.
In addition to looking for additional funds to close the $2–$3 billion financing deficit for the current fiscal year, Pakistan is negotiating with the UAE, China, and Saudi Arabia to secure the rollover of $12 billion in deposits that the State Bank of Pakistan has on hand for the same period.
In addition, an additional $2–$3 billion in funding is needed to meet the IMF’s criteria. The supplementary money from the Kingdom of Saudi Arabia along with the restart of loans from Middle Eastern banks might potentially assist Islamabad in filling the $2–$3 billion funding shortfall for the current fiscal year.
In an attempt to deflect attention from the urgent problem of the external financing deficit, Governor Jameel Ahmed of the State Bank of Pakistan (SBP) recently moved the blame to the Finance Ministry.
Leading official sources told The News on Friday that the approval of a $7 billion bailout package under the Extended Fund Facility (EFF) from August to September 2024 was delayed because the IMF discovered a $2–$3 billion deficiency in external financing. Top official sources acknowledged to a few journalists here on Friday that “we are now in the process of securing confirmation from bilateral partners and resumption of commercial loans from Middle East-based banks.”
In recent weeks, Pakistani authorities requested that the Saudi Finance Minister complete the IMF criteria and obtain approval from the Fund’s Executive Board for a $7 billion EFF package.
While Pakistan recently approached commercial banks in the United Arab Emirates, the authorities are confident that they have established contact with the top brass of their bilateral partners. As a result, the IMF’s Executive Board is expected to approve a $7 billion EFF package by September 2024; however, they have not disclosed any specific dates. Pakistan has asked Saudi Arabia for more than $1 billion in funds to cover the $2–$3 billion financing shortfall beyond the incremental assistance.
Although the KSA has not yet confirmed, they are considering their options for assisting Pakistan in winning an IMF agreement to receive a $7 billion bailout package.
The first fiscal year gap of 2024–25 was deemed more problematic by Pakistani authorities, who felt that in subsequent years they would be in a more comfortable position to bridge the financing gap over a 37-month period. However, the IMF’s assessment of the external financing gap for three years was on the higher side, in the range of $6 to $8 billion.
The official said that after securing the IMF program and receiving the first tranche, there were expectations that the country’s credit ratings would significantly improve, allowing Islamabad to obtain commercial loans from Middle Eastern banks and re-appear on the radar screen of the international capital market for the issuance of international bonds. When asked how this financing gap would be bridged over a 37-month period, the official replied.
