As Pakistan works towards securing a $7 billion bailout package under the Extended Fund Facility (EFF), the country is facing significant hurdles in finalizing the deal. Despite having reached a staff-level agreement with the International Monetary Fund (IMF) in July, Pakistan has yet to sign a crucial Letter of Intent (LoI) required to formally request the IMF’s executive board to approve the funding.
Finance Minister Muhammad Aurangzeb has indicated that progress is being made towards obtaining board approval in September. However, a critical external financing gap of $3 to $5 billion remains unresolved. This gap must be addressed before Pakistan can move forward with the formal approval process.
The external financing issue has become a major stumbling block in the process of securing the bailout package. Pakistan’s request is yet to be included in the IMF’s executive board’s agenda, which means that as of August 28, 2024, the board will not consider Pakistan’s request for loan approval. This delay underscores the urgency for Pakistan to finalize the necessary financial arrangements and secure the required assurances from its development and bilateral partners.
The staff-level agreement reached on July 12, 2024, was intended to pave the way for formal approval by the IMF’s executive board within four to six weeks. However, the agreement is contingent upon Pakistan providing timely confirmation of necessary financing assurances from its partners. The IMF has made it clear that the agreement remains subject to this confirmation.
Pakistan faces a substantial repayment burden, with $26.2 billion in external debt due for the current fiscal year 2024-25. This includes a rollover of $12.3 billion in deposits, which Pakistan has communicated would be rolled over for one year. Although the Pakistani government sought a three-year rollover, key partners such as Saudi Arabia, China, and the United Arab Emirates (UAE) have only committed to a one-year rollover.
The delay in signing the LoI and securing external financing highlights the challenges Pakistan faces in stabilizing its economy and securing international support. The IMF’s assistance is crucial for Pakistan to manage its external debt obligations and implement necessary economic reforms. The ongoing negotiations and efforts to address the financing gap are critical to ensuring the successful completion of the bailout package.
Finance Minister Aurangzeb’s assurance of progress towards board approval is a positive development, but the path ahead remains fraught with challenges. The resolution of the external financing gap and the finalization of the LoI are key steps that must be completed to enable the IMF’s executive board to consider and approve the bailout package.
As Pakistan navigates these complex negotiations, the international community and financial partners will be closely watching the developments. The outcome of these efforts will have significant implications for Pakistan’s economic stability and its ability to meet its financial commitments in the coming months.
