Pakistan to gain foreign inflows worth $8 billion

KARACHI: Taking more than a normal course of time of two weeks, the International Monetary Fund (IMF) programme with Pakistan is slated to resume after the Executive Board meets on February 2, 2022, as the implementation of prior actions, related to fiscal and institutional reforms, are now complete after parliamentary approval of the State Bank Amendment Bill 2021.

This embarks Pakistan on a journey to gain additional foreign inflows of $8 billion over the near-term, including the IMF’s EFF disbursements, enhancing the capacity to fund the external account imbalances.

However, the repayment schedule to the fund is kick-starting in the ongoing quarter and the pressure on the external debt repayments continues to withstand the sanguine inflows.

With the approval of the SBP Amendment Bill 2021 in the Senate last week, one can safely say that it has taken Pakistan and the IMF more than two months, instead of about less than a half month, as seen historically, to release the tranche after reaching a staff-level agreement.

Nevertheless, it should be noted that the staff-level agreement had highlighted the disbursement approval of the Executive Board, stood contingent to the implementation of prior actions, related to fiscal and institutional reforms.

Effectively, the Finance (Supplementary) Act 2021 and the SBP Amendment Bill 2021 are now in play.

The resumption of the IMF programme will now bring an immediate release of $1.06 billion (SDR 750 million) to Pakistan.

Consequently, the total EFF disbursements will now stand at $3.03 billion (SDR 2.14 billion) of the approved facility of $5.98 billion (SDR 4.27 billion).

An additional disbursement of $1.4 billion (SDR 1.02 billion) was made to Pakistan in April 2020 in terms of Rapid Financing Instrument (RFI) to assist overcome the economic shocks of the Covid-19.

The current outlook of foreign exchange reserves build-up is encouraging after Pakistan bagged $3 billion from Saudi Arabia in December 2021 and $1 billion from the International Sukuk issuance during the ongoing January 2022. Moreover, the IMF flows of $1 billion will be followed by $2 billion to 2.5 billion of the multilateral and bilateral flows, while the government is seeking another approval of $3 billion loan from China’s State Administration of Foreign Exchange (SAFE), also known as SAFE deposits, to increase the foreign exchange reserves.

As per the projected payments’ schedule available on the IMF’s website, the repayments to the IMF have started in the ongoing quarter with $249 million in the third quarter of FY22 and $279 million in the fourth quarter of FY22.

This will likely to increase beyond FY23 when Pakistan will also have to retire the $1.4 billion RFI over a course of two years.

The upcoming IMF’s Executive Board approval will tell more on how it is projecting the upcoming disbursements, repayments and Pakistan’s economic outlook.

With the EFF conclusion in September 2022 as the last review, there are only two reviews remaining, the second last one in March-April 2022.

Wajid Rizvi is a research analyst who possesses a blend of both sell-side and buy-side (commercial bank) equity research of Pakistan equities. He possess a diverse skill set in equity valuation and financial modelling.