Pakistan’s anticipated $7 billion loan approval from the IMF’s Executive Board could be pushed back to October 2024 if the country fails to secure $2 billion in external financing from bilateral and commercial lenders this week.
Top government sources confirmed to The News on Monday that Pakistan must submit a signed Letter of Intent (LoI) to the IMF, requesting the approval of the 37-month Extended Fund Facility (EFF). The LoI will need to include a written commitment that Pakistan will adhere to all conditions outlined by the IMF.
As of now, Pakistan does not appear on the IMF Executive Board’s agenda until September 18, 2024. The government is making efforts to secure assurances from bilateral creditors to address the $2 billion financing gap identified by the IMF, but progress has been limited. If this week passes without confirmation, the likelihood of approval for the $7 billion loan will decrease significantly.
The situation poses a new challenge for Pakistan’s struggling economy. If approval is delayed until October, the release of first-quarter economic data for July-September could further complicate matters. In this scenario, the IMF may prescribe a mini-budget if fiscal slippages emerge, particularly if the Federal Board of Revenue (FBR) fails to meet its tax and non-tax collection targets.
A key concern is the risk of a shortfall in petroleum levy collections due to reduced domestic consumption of petroleum products (POL). The government set a target of Rs1.281 trillion through petroleum levies, but declining consumption could threaten the achievement of this goal.
According to internal FBR projections, a revenue shortfall of Rs200 to Rs220 billion for the first quarter is anticipated, with final estimates likely to emerge by mid-September. If this shortfall materializes, the government may be forced to implement significant expenditure cuts.
Amid these challenges, the Ministry of Finance is hopeful that the upcoming Monetary Policy Committee (MPC) meeting on September 12, 2024, may result in a reduction of the policy rate by 150 to 200 basis points, bringing it down from the current 19.5% to 18% or 17.5%. Such a move could provide some relief by reducing government expenditure in the months ahead.
When reached for comment, officials at the Ministry of Finance were largely silent on the issue. However, one senior official expressed optimism, stating that good news on external financing could emerge this week.