Reserves will rise to $11.7bn by end of FY24, Pakistan assures IMF

• Reserves currently stand at $4.056 billion.
• If reserves rise, will meet import requirements for 1.8 months.
• Pakistan expects $2 billion from KSA, $1 billion from UAE.

ISLAMABAD: Pakistan will take all-out measures to jack up gross foreign exchange reserves by $7.65 billion, increasing it up to $11.7 billion by the end of the financial year 2024 from the existing level of $4.056 billion in the financial year 2023, the country has assured the International Monetary Fund (IMF).

A Letter of Intent (LoI), signed by Finance Minister Ishaq Dar and State Bank of Pakistan (SBP) Governor Jameel Ahmed, extended assurances to the Washington-based lender and its executive board under a $3 billion stand-by arrangement (SBA) for nine months that a buffer of foreign exchange reserves would be built up for facing any exogenous shocks to the national economy.

If the gross foreign exchange reserves are increased to $11.7 billion by the end of June 2024, they will be sufficient to meet the import of goods and services requirements for 1.8 months.

The balance of payment (BoP) chart, agreed upon by the IMF and Pakistan, showed that the projected disbursements of foreign loans stood at $15.01 billion from multilateral and bilateral creditors during the current financial year 2023-24, which started on July 1, 2023, and will end on June 30, 2024.

The technical work done by both sides on the BoP data showed that Pakistan would have to ensure external financing from multilateral and bilateral creditors during the current fiscal year.

Moreover, Pakistan wants an additional deposit of $2 billion from the Kingdom of Saudi Arabia and $1 billion from the United Arab Emirates (UAE).

The Islamic Development Bank (IsDB) has agreed to provide $1 billion loan programme.

Programme loans and project financing from the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank (AIIB) are also being worked out to secure total disbursement from all multilateral and bilateral avenues to the tune of $15 billion.

Furthermore, Pakistan will have to pursue bilateral partners, especially China, Saudi Arabia and the UAE, to roll over their existing deposits of $2 billion, $3 billion and around $2 billion, respectively, in the current financial year.

IMF meeting

The IMF executive board is scheduled to meet on July 12, 2023, in Washington DC, to consider Pakistan’s request sent through the LoI for approving a $3 billion short-term bailout package and a $1 billion tranche release. 

This $1 billion tranche would be disbursed within the next few days after the Fund’s executive board’s approval.

The IMF staff has already circulated copies of the LoI among the executive board members, in which Finance Minister Ishaq Dar and the SBP governor gave assurances to undertake crucial fiscal and energy reforms to overcome slippages on fiscal accounts.

Islamabad also assured the Fund to pursue energy sectors, including implementing all steps to control the monster of circular debt in the energy sector.

The energy sector required raising power and gas tariffs as determined by the regulators.

A Finance Division official told this scribe that there might be two reviews under the SBA programme for nine months, which will be undertaken by the IMF mission in September and December 2023.

Each review is expected to enable the disbursement of a $1 billion installment.

About the power and gas tariff, the official said once the determination of the National Electric Power Regulatory Authority (NEPRA) has been finalised and the baseline tariff will be jacked up accordingly.

About the gas tariff, the official said he would have to ascertain facts on the subject.

However, the Oil and Gas Regulatory Authority (OGRA) had already recommended jacking up gas tariffs by 45% and 50% for two giants of gas utilities.

OGRA had given its determination in early June 2023, and there will be a 40-day timeframe before the government takes a decision; otherwise, it will stand notified in the second week of July 2023.