Challenges Loom Over Pakistan’s External Financing Plan and IMF Program

Islamabad: Pakistan faces mounting challenges as concerns arise over securing approximately $4.5 billion in external financing, alongside potential budget increases of another Rs 1 trillion due to underestimated debt costs. These issues could pose significant hurdles during the first review of the $3 billion International Monetary Fund (IMF) program scheduled for November this year.

Realistic Budget Estimates Urgently Needed

Sources within the finance ministry have highlighted that the financing gap and the under-allocation for interest payments in the current fiscal year stem from unrealistic budget estimates. In recent days, several meetings have convened to address these concerns.

Compared to the projected $20 billion in external financing, there is apprehension that Pakistan may fall short by at least $4.4 billion in securing foreign loans. This matter has brought to the attention of the highest authorities within the Ministry of Finance, prompting a series of discussions between the Economic Affairs Division and the Finance Division to bridge this financial gap.

Budget Discrepancies Emerge

Within just three months of approval, the federal budget and annual external financing plan have found to be unrealistic. Concerns previously raised in June about the potential shortfall in the allocated amount for interest payments. The government had estimated recovering $4.5 billion in loans from foreign commercial banks and an additional $1.5 billion through Eurobond issuances.

The Finance Ministry acknowledges that due to Pakistan’s low credit rating and the prevailing high global interest rates, securing non-Chinese trade loans worth approximately $3 billion may prove challenging. However, they remain optimistic about securing $1 billion in Chinese commercial financing and around $600 million from other sources.

Exploring Alternative Funding Sources

Considering the low probability of raising $1.5 billion through bond issuances, the government is now exploring alternative external financing sources. Options include additional borrowing from multilateral lenders and accelerating privatization efforts.

Caretaker Finance Minister Dr. Shamshad Akhtar recently directed the Finance Ministry to review the financing plan in light of current economic conditions, with a specific focus on securing funds from non-Chinese foreign commercial banks through loans and sovereign bonds.

Adjusting Strategies for a Viable Financing Plan

To address the challenges, the Economic Affairs Division has tasked with exploring increased loans from multilateral and bilateral lenders. The government had initially estimated $6.2 billion in loans from these sources for the current fiscal year. In July, Pakistan received foreign loans totaling $5.1 billion, including $3 billion from Saudi Arabia and the United Arab Emirates, as well as $1.2 billion from the IMF.

Disbursements under the IMF program have not yet commenced, despite initial expectations of swift disbursements following the loan’s approval. State Bank regulations are also posing challenges to securing funding. To expedite development activities and facilitate external financing, provinces need to accelerate their projects, while the State Bank may need to review its regulations. Multilateral and bilateral lenders may potentially disburse over $7 billion during the current fiscal year under these adjusted strategies.

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