Pakistan is on track to receive the next tranche of a $3 billion loan from the International Monetary Fund (IMF) despite facing some challenges and missing a few deadlines, a brokerage report said on Saturday.

Brokerage Topline Securities the country had met the targets for net international reserves, net domestic assets, and foreign currency swap/forward position as of end-June 2023. However, it had missed the targets for primary deficit, which measures the fiscal balance excluding interest payments, and for external public debt disbursements.The report also said that Pakistan had not yet implemented the agreed gas price adjustment, which was a prior action for the completion of the second review of the program.Pakistan got the first instalment of a stand-by arrangement from the IMF in the amount of $1.2 billion in July after the global lender’s board approved the bailout package to stabilise the country’s economy. The remaining $1.8 billion tranche from the IMF is to be disbursed following two reviews in November and February.The latest IMF programme has set nine performance criteria, four indicative targets, and 10 structural benchmarks for the upcoming review.The governor of the State Bank of Pakistan at the analyst briefing on September 14 said that all quantitative performance targets related to the SBP, which includes net domestic assets, swaps, and net international reserves have been met.Similarly, according to the Ministry of Finance, the government is committed to maintaining fiscal discipline and achieving primary balance targets.“Despite challenges and few missed targets, related to external funding, primary deficit, gas prices adjustment, etc, we think that there is a high probability that Pakistan will get the next IMF tranche,” said Topline Securities in a report.“We believe that if the government can successfully manage the current account deficit [CAD] to around $4 billion for FY2024 versus $6.5 billion, it can meet its financing requirements especially when commercial borrowing is next to impossible,” it added.Ministry of Finance has projected gross external financing requirements of $28.4 billion including the current account deficit of $6.5 billion for the current fiscal year. These numbers are also in line with the IMF projections, quoted in the latest country report.In terms of funding sources, the government plans to secure a total of $11 billion, with contributions of $5 billion from China and $6 billion from Saudi Arabia in the form of rollovers and an oil facility with deferred payments, said the Topline report.The government anticipates around $6.3 billion from multilateral creditors, including the World Bank, Asian Development Bank, Islamic Development Bank, and the Asian Infrastructure Investment Bank, it added.According to the SBP’s governor, the total external financing requirement for FY2024 is $24.6 billion out of which $2.8 billion has already been paid. According to him, the SBP has received commitments for rollovers worth $8 billion, with an additional expectation of $3 billion to be rolled over. The net payable amount stands at $8 billion.“Based on our analysis, meeting the primary budget surplus target of Rs87 billion will be the biggest task for the Finance Ministry,” the report said.The revenue collection of the Federal Board of Revenue increased 24 percent to Rs2.041 trillion in the first quarter of FY2024. Tax collection was higher than the target of Rs1.977 trillion.“Similarly we expect that non-tax revenues for the July-September period will be Rs600-650 billion versus the annual budgeted amount of Rs2,963 billion. We expect petroleum development levy (PDL) to be Rs200-250 billion in Q1FY24 as against the annual target of Rs869 billion,” the report said.In the last monetary policy meeting held in September, the SBP maintained the policy rate at 22 percent amid expectations that real interest rates continue to remain in positive territory on a forward-looking basis.Here again, the SBP needs to convince the IMF team about their outlook on inflation and how they think the current monetary stance is adequate considering agricultural growth and global commodity prices, according to the report.IMF has again reminded in July 2023 that Pakistan’s exchange rate will be allowed to be determined by the market forces. Moreover, it was also advised to abstain from informal influence, including import management and letters of credit approval guidanceFurthermore, as per the IMF, average premium between the interbank and open market rate should be no more than 1.25 percent during any consecutive 5 business-day period.“We believe that SBP and government can explain the situation and can get a relaxation of non-compliance of 1.25 percent band,” the report said.


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2023-10-08

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