The International Monetary Fund (IMF) has projected Pakistan’s gross external financing needs at $28.361 billion for fiscal year 2023-24 (FY24), which is 8 percent of GDP.
The IMF in its Staff Report noted that the country’s external financing need would be $30.4 billion in fiscal year 2024-25. The Fund stated that the SBA program is fully financed but with exceptionally high risks. Financing commitments from bilateral and multilateral partners will help cover public gross external financing needs in FY24 and the reserve position at end-FY24 is consistent with program objectives.
Bilateral creditors are expected to maintain their exposure to Pakistan in line with program commitments and there are commitments for $3.7 billion of additional financing expected from Saudi Arabia and the UAE. These together with commitments from multilateral institutions, including the Islamic Development Bank, and other pledges at the Geneva conference provide the necessary financing assurances.
Nonetheless, financing risks remain exceptionally high, arising from large public sector external rollover needs, a sizable current account deficit, a difficult external environment for Eurobond issuance given recent downgrades and high spreads, and limited reserve buffers to help cover the financing needs in case of delays in scheduled inflows.
The report noted that Pakistan’s capacity to repay the Fund is subject to significant risks and would critically depend on policy implementation and timely external financing. The Fund’s exposure reaches SDR 6,123 million (or 301 percent of quota and about 108 percent of projected gross reserves in end-September 2023) with purchases linked to the request.
With the completion of all purchases under the arrangement, the Fund’s exposure would peak at SDR 6,673 million in March 2024 (or 329 percent of quota and about 109 percent of projected gross reserves in end-March 2024).
Exceptionally high risks—notably from delayed adoption of reforms, high public debt, and gross financing needs, low gross reserves and SBP’s sizeable net FX derivative position, the recent decline in inflows, and sociopolitical factors—could jeopardize policy implementation and erode repayment capacity and debt sustainability.
Restoring external viability is critical to ensure Pakistan’s capacity to repay the Fund, and hinges on strong policy implementation, including beyond the proposed SBA.
In the absence of the proposed SBA, the capacity to repay the Fund would be strained. Uncertainty about global economic and financial conditions, amid several successive shocks, adds to these risks. Adequate execution of firm and credible financing assurances is an essential mitigating factor.
The Pakistani authorities have stated that they have secured adequate financing from our international partners to support our economic reform program.
Current projections suggest that with the policies outlined in this MEFP, the gross external financing needs for FY24 will amount to approximately $28.4 billion (including the current account), of which about $14.5 billion is amortization to multilateral and bilateral official as well as commercial creditors.
“To close this gap, we have secured $10 billion as rollovers and refinancing of maturing debt and $5.6 billion in additional financing commitments from bilateral, multilateral, and commercial partners, including some of the funds pledged at the time of the combined seventh and eighth EFF reviews, at the International Conference held in Geneva in early 2023, and other sources. In line with program financing commitments, key bilateral creditors will at least maintain their exposure to Pakistan,” the authorities added.
Source: Pro Pakistani