Approval by IMF board to be delayed to Oct?

[ghazi52]

Approval by IMF board to be delayed to Oct?​

BR Research
September 10, 2024

It’s been almost two months since the SLA, and there is no update on when Pakistan’s program would be approved by the Fund’s board. Given the current situation, the board meeting will likely not take place in September.

The issue pertains to gross financing gaps where the reliance of both Pakistan authorities and the IMF is on friendly countries—mainly China and Saudi Arabia. The game started with arranging the incremental financing of $2 billion in FY25 and $3 billion in FY26 and FY27. Three countries—China, Saudi Arabia, and the UAE—are now raising concerns about the rollover of $12-16 billion, which we had believed would be straightforward during the SLA period.

Now, game theory is in play. If A country needs finance, that country is to carry the risk of B country not rolling over the existing loans, and that is making A country’s incremental money stuck, as the existing loans are deemed to be stuck. A is waiting for B to move, and B is looking at A.

The IMF finds itself torn between the two.

China is not pleased with Pakistan the way things have been for the last three years or so. Some Chinese circles now perceive Pakistan as an unreliable partner. That is making Saudi Arabia uncomfortable in terms of arranging additional financing.

When the IMF signed the SBA in 2023, it assumed that Pakistan’s debt was sustainable. Even with restricted imports, pending dividend payments, over 30 percent inflation, and a dire global financial situation, the IMF considered Pakistan’s debt sustainable.

All these indicators have improved significantly. If the Pakistani external debt was sustainable then, it should be sustainable now. And if it is not sustainable today, how could it be sustainable back then? That is why both the IMF and Pakistan authorities are working hard to obtain gross financing and rollovers.

Thus far, there has been minimal success in this endeavor. Some commentators are easily drawing connections between the current domestic political situation, the establishment’s dealings with the PTI, and the way PMLN leader Ishaq Dar is once again blaming the IMF for delaying the disbursement to Pakistan. It’s a déjà vu - of 2023.

Dar’s statement is not at all responsible; it’s divergent from reality and not in the best interest of the country, which desperately needs the IMF program to ensure debt sustainability. Here one can smell politics.

This coincides with a softening of the establishment’s stance towards the PTI, as evidenced by their decision to allow the party to hold a Jalsa on Sunday. The recent press conference’s language also suggests a softening of the establishment’s stance towards the PTI. This may also have something to do with friendly countries potentially demanding political stability before proceeding further.

Whatever the case is, the IMF is delayed. The situation will remain fluid until the money comes in.

 

[Hakikat ve Hikmet]

The Pak Deep State can purchase 5th gen jets but can't procure a few billions of bucks! Who are they fooling? And, what have they taken the folks for??

 

[nahtanbob]

The Pak Deep State can purchase 5th gen jets

with Chinese taxpayer dollars

 

[Dalit]

This is nice. I want Ishaq Dar to cry even harder now.

 

[PakFactor]

The Pak Deep State can purchase 5th gen jets but can't procure a few billions of bucks! Who are they fooling? And, what have they taken the folks for??

@Oscar I'm just in awe of how some people are captivated by this deep-state economy nonsense.

It's as if the deep state will pay out of pocket for those 5th Gen jets.

 

[harpy1]

The 5th gen jets are not free
You are exchanging your sovereign land for equipment
China gives nothing for free
Today
Gwader is Chinese land policed by Chinese guards
Gilgat baltistan is the same

If you can't raise two or three billion via imf no way are exchanging dollars for military hardware

And china is too smart to do it for free

 

[nahtanbob]

@Oscar I'm just in awe of how some people are captivated by this deep-state economy nonsense.

It's as if the deep state will pay out of pocket for those 5th Gen jets.

it must be richest deep state I know of

Generally folks in deep state in USA have a lot of power, information and connections. Rarely it is translated into wealth. If you want to make money you need to head for Wall Street, med school or Silicon Valley

 

[PakFactor]

it must be richest deep state I know of

Generally folks in deep state in USA have a lot of power, information and connections. Rarely it is translated into wealth. If you want to make money you need to head for Wall Street, med school or Silicon Valley

If only my family were employees of this Deep State Economy, I could've been a multi-millionaire while in sperm form. I wouldn't have even had to work to maintain that status.

The Turkish Armed Forces Defense Trust should learn a thing or two from Pak Army Enterprise; rather than investing in defense sector companies should go into farming, housing societies, cereal, bank, etc. They would've made more money and get 5th Gen jets.

 

[SaadH]

Waiting for IK to be removed from the scene Morsi style.

 

[harpy1]

If only my family were employees of this Deep State Economy, I could've been a multi-millionaire while in sperm form. I wouldn't have even had to work to maintain that status.

The Turkish Armed Forces Defense Trust should learn a thing or two from Pak Army Enterprise; rather than investing in defense sector companies should go into farming, housing societies, cereal, bank, etc. They would've made more money and get 5th Gen jets.

Lol lol professional military focused on protecting the borders NOT unfortunately

 

[DarthVader]

The Pak Deep State can purchase 5th gen jets but can't procure a few billions of bucks! Who are they fooling? And, what have they taken the folks for??

China like US now.
Is offering on new toys on installment plans, just so developing countries can buy from China instead of US. As these deals opens the door for more countries to buy chinese weapons

Yes Army does run a multi-billion dollar business but none of that cash flows back into Army, they mostly gets re-invested in side stuff they going on.

 

[nahtanbob]

Dar’s diatribe against the IMF​

IN remarks reported widely in the media, Foreign Minister Ishaq Dar has been quoted complaining that the IMF is playing politics with Pakistan and changing the goalposts at critical moments to delay the disbursement of funds.

Those who know him and have spoken with him over the years know his propensity to speak at length off the cuff and also know that he harbours great mistrust, bordering on animus sometimes, towards the IMF. This is not the first time he has rolled out the ‘geopolitics’ card when talking about delays in getting Fund approval for disbursement of the next tranche. He did the same as finance minister in 1999 and again in 2022, 2023.

But is it true? More likely what Pakistan is facing is an absence of geopolitics on the IMF board. Between 2001 and 2021, the country had more or less a free run of things at the Fund, when programme approvals came swiftly and reviews went smoothly and waivers were granted without too much trouble. It is not difficult to note what these dates denote: the arrival and continued deployment of American troops in Afghanistan. Since August 2021, when the deployment ended, so did Pakistan’s ‘special treatment’ at the Fund.

Dar wishes to argue that the Fund held out completion of the reviews under the last Extended Fund Facility “for eight months”, as he did in his reported remarks given in London, due to geopolitics. He has been quoted as saying the Fund wanted to push Pakistan into a default. His reference was to the months he was finance minister from September 2022 till June 2023. A Fund review did indeed stall during those months with the programme drawing to a close, with the last few reviews unfinished.

But if the IMF was trying to push Pakistan into default, why did the same Fund mobilise so expeditiously to arrange a Stand-by Arrangement (SBA) in July 2023, literally weeks after the Dar government handed over power to an interim set-up? Why try to push a country into default, then move rapidly to rescue the same country at the last minute and prevent such a default?

More likely what Pakistan is facing is an absence of geopolitics on the IMF board.

The answer is simple. The Fund was not trying to push Pakistan into default or playing geopolitics. It was simply trying to get some commitments to be upheld, which were not being upheld, and in the absence of geopolitics, Pakistan’s traditional resort to external bailouts had shrunk considerably.

Consider a few numbers to get a sense of how things moved from that July to today. Take a look at where Pakistan’s projected macro targets were meant to be as per the projections in the September 2022 review, when Dar was finance minister, and July 2023, when he handed over power to an interim set-up.

In September 2022, FBR revenues for the ongoing fiscal year (FY25) were projected to be Rs9.7 trillion. In the July SBA, this projection had risen to Rs11tr. One could look at these numbers and argue that the Fund shifted the goalposts by raising the revenue target by more than a trillion rupees.

But then look at the other side of the equation. In September 2022, current expenditures for that year were meant to come in at Rs11.1tr by year-end. This projection had then been revised up to Rs12.3tr during the review, an upward revision of more than one trillion rupees! By the time the year ended in June 2023, current expenditures came in at Rs14.4tr, overshooting their newly revised target by more than two trillion rupees!

Targets were strictly adhered to in the SBA of July 2023, the main reason why the country was able to pull back from the brink of a catastrophic default. But the memory of agreeing to targets then — either failing or refusing to abide by them, and thereby prolonging the spell of macroeconomic uncertainty in the country — could be easy to forget. Go through the targets one by one. From fiscal to external sector, the story in the past few years is the same: weak ownership of the stabilisation programme.

None of this should be surprising. The government that took power following the April 2022 vote of no-confidence inherited an economy poised for massive instability with a runaway situation on the current account and the fiscal deficit. Faced with a ferocious political contest at the same time as it had to undertake a painful economic adjustment, the government dithered.

Prior to this, the outgoing government of the PTI had similarly found it very difficult to unwind the Covid stimulus and resume the Fund programme, and as its political challenges mounted in the run-up to the vote of no-confidence, its commitment to adhere to Fund targets diminished. In a sense, from 2020 onwards, all governments (except for the interim set-up) have been unable to really walk the path of adjustment, due in large part to the intensity of the political competition plaguing the country since then.

It might be tempting for Dar to blame the IMF for this, but it is difficult to believe that this inability to adhere to commitments would be without consequences. The more the country dithers on its own commitment to its own macroeconomic stabilisation, the less its creditors will feel assured that this country can meet its external debt service obligations in a timely manner. The more this feeling grows, the more assurances they will need before becoming engaged with this country.

It is as simple as that. It is very difficult to believe that there is any geopolitical interest of any country out there which is advanced by watching Pakistan default. Such an event serves neither the foreign policy interests of any of the larger powers Pakistan is in debt to, nor does it serve the economic interests of anyone. More than outsiders, the government must realise that safeguarding the hard-fought stability of our time is its singular responsibility.

The writer is a business and economy journalist.

[email protected]

 

[Oscar]

@Oscar I'm just in awe of how some people are captivated by this deep-state economy nonsense.

It's as if the deep state will pay out of pocket for those 5th Gen jets.

It's an over bloated concept of a grey economy that is mostly used for personal gains - although you can see the latest news on how billions worth of Gemstones have been smuggled out... let's assume that some of it was financing this grey economy; what could possibly be achieved in terms of change with that?

 

[KAAFIR]

China like US now.
Is offering on new toys on installment plans, just so developing countries can buy from China instead of US. As these deals opens the door for more countries to buy chinese weapons

Yes Army does run a multi-billion dollar business but none of that cash flows back into Army, they mostly gets re-invested in side stuff they going on.

China is more cruel than US.
US Only snatch your sovereignty but China snatch your sovereignty as well as land if you don't pay them in return.

 

[Dalit]

China is more cruel than US.
US Only snatch your sovereignty but China snatch your sovereignty as well as land if you don't pay them in return.

Indian Hindutvatis and their concern for Pakistan is always laughable. An army of Hindutva trolls advising Pakistan against Chinese investment.

Can I as a Pakistani give some advice to Indian Hindutvatis? Don't befriend the Americans. They are exploiting you guys and making you suicidal against China and Pakistan. In exchange for preferential treatment the Americans expect you Indians to contain China which you never can. Bad deal.