Pakistan likely to receive next IMF tranche despite missing some targets: report

• Topline Securities says country met targets for net international reserves.
• Pakistan yet to implement gas price adjustment agreed with IMF.
• All quantitative performance targets related to SBP have been met.

KARACHI: Pakistan is likely to receive the next tranche of the $3 billion stand-by arrangement (SBA) with the International Monetary Fund (IMF) even though it may miss a few deadlines, a brokerage report said on Saturday.

Topline Securities said the country had met the targets for net international reserves, net domestic assets, and foreign currency swap/forward position as of the end of June 2023 but highlighted that Islamabad had missed the targets of the primary deficit, which measures the fiscal balance excluding interest payments, and for external public debt disbursements.

The report also said that Pakistan is yet to implement the gas price adjustment it had agreed with the global lender. The adjustment was a prior action for the completion of the second review of the program.

Pakistan got the first installment of a stand-by arrangement from the IMF in the amount of $1.2 billion in July after the Executive Board of the lender approved the bailout package to stabilise the country’s economy. Under the agreement, the remaining $1.8 billion from the IMF has to be disbursed in two tranches after 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 a briefing for analysts on September 14 said that all quantitative performance targets related to the central bank, which includes net domestic assets, swaps, and net international reserves have been met.

Similarly, according to the Finance Ministry, 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.

The ministry 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 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.