Business

Pakistan’s default odds rise as IMF sours on bailout: Bloomberg

Published

2 years ago

Farwa

Report says without IMF programme, options for fresh funding will likely be “very limited.”
“With forex reserves likely below $4bn, default seems highly likely,” reports mentions.
Negotiations with IMF on any new bailout aren’t likely to start until after elections in October.

KARACHI: The International Monetary Fund’s (IMF) criticism of Pakistan’s latest budget suggests chances are rising that the lender will opt not to deliver long-awaited aid before its bailout programme finishes at the end of June, Bloomberg reported.

“This would cause a severe dollar shortage in the first half of the fiscal year that starts in July, and possibly for longer — significantly raising the odds of default, Bloomberg economist Ankur Shukla said in the report, Pakistan Insight.

“It would also raise the prospect of much lower growth, and higher inflation and interest rates than we currently anticipate in fiscal 2024.”

The IMF criticised the budget for not taking enough steps to broaden the tax base and for including a tax amnesty.

The country’s foreign currency reserves currently stand at $4 billion. With at least around $900 million in debt that must be repaid this month, the reserves will fall by June-end unless the IMF aid comes.

Between July-December, Pakistan must repay an additional $4 billion, which cannot be rolled over. “With foreign exchange reserves likely below $4 billion at the start of fiscal 2024, the default seems highly likely,” the report said.

“Without any IMF programme, the options for fresh external funding will likely be very limited.”

Pakistan’s default odds rise as IMF sours on bailout: Bloomberg

It said that negotiations with the IMF on any new bailout aren’t likely to start until after elections in October. “Reaching an agreement will take time. Any actual aid disbursement from the IMF under a new programme will not happen until December.”

In the meantime, the country will need to conserve dollars by limiting import purchases — and keeping a current account balance in surplus— to have any hope of being able to meet its obligations.

It will also need to seek assistance from friendly nations to avert a default in the first half of fiscal 2024.

The report said Pakistan’s economy will likely be hit hard if the IMF doesn’t deliver aid by June-end.

The authorities will have to keep import restrictions in place. The State Bank of Pakistan will also likely raise rates above the current level of 21% to further curb demand for imports and conserve foreign exchange reserves, it added.

“Our base case currently is that the SBP will likely remain on hold through December (but that assumed the IMF aid coming in by June-end).”

Continued import restrictions and a weaker rupee would lead to higher inflation in fiscal 2024 than currently anticipated.

“We currently expect inflation to average 22%. Higher borrowing costs and restrictions on imports of raw materials would hit production further. Higher inflation would damp consumption,” it added.

The report said if IMF aid doesn’t come this month, the growth will be much weaker in fiscal 2024 than the current forecast of 2.5%.

“Higher rates will also increase the government’s debt servicing costs. The government currently plans to spend half of the fiscal 2024 budget on debt servicing.”

Business

SFD and Pakistan Sign Two Deals Totaling $1.61BLN

Published

2 days ago

Farwa

Two agreements totaling $1.61 billion have been inked by Pakistan and the Saudi Fund for Development to improve their bilateral economic cooperation.

Business

Saudi Arabia and Pakistan sign an MOU to strengthen their auditing industry collaboration.

Published

2 days ago

Farwa

A spokesperson for the office of the Auditor-General of Pakistan (AGP) announced on Monday that the two countries have signed a Memorandum of Understanding (MoU) to strengthen cooperation in public sector auditing through improved cooperation between audit institutions of both countries, as well as training programs and the exchange of trainers.

This comes as a group from Saudi Arabia’s General Court of Audit (GCA), headed by GCA President Dr. Hussam bin Abdulmohsen Alangari, arrived in Pakistan on Sunday for a four-day visit.

The agreement was signed during AGP Muhammad Ajmal Gondal’s meeting with the Saudi delegates, aiming to strengthen audit cooperation, enhance knowledge-sharing, and improve governance, transparency and accountability in government spending.

Public relations officer Muhammad Raza Irfan of the AGP’s office told Arab News that the deal will further advance bilateral collaboration between Saudi Arabia and Pakistan in addition to enhancing professional ties between the two nations’ auditing institutions.

In a statement released from his office, AGP Gondal was cited as saying, “This collaboration marks a significant step toward fostering international cooperation in auditing.”

“The exchange of ideas and methodologies will undoubtedly strengthen our capacity to meet emerging challenges and set new benchmarks for public accountability.”

Discussions at Monday’s meeting focused on fostering closer ties between the Supreme Audit Institutions (SAIs) of Pakistan and Saudi Arabia, sharing innovative audit methodologies, and planning collaborative initiatives for the future, according to the AGP office.

The two parties decided to increase their knowledge of theme, environmental, and impact audits as well as to exchange best practices in audit standards, performance audits, and citizen participation audits.

The statement added, “It also agreed to exchange trainers, address new auditing challenges, plan cooperative audits, including a performance audit on the oil and gas sector in 2025, and work together on training programs.”

Both sides reaffirmed their shared commitment to promoting transparency, accountability and excellence in public sector auditing.

Business

The government chooses to continue the PIA privatization process.

Published

2 days ago

Farwa

The Pakistan International Airlines (PIA) privatization process will be restarted by the federal government, and expressions of interest would be requested within the month. Officials stated that the Prime Minister’s Committee on Privatization will convene to make the final decision.

Usman Bajwa, the secretary of the Privatization Commission, gave a briefing on the updated procedure to the National Assembly Standing Committee on Privatization. Additionally, he disclosed that airlines other than PIA are now able to compete with regional carriers thanks to IMF-approved aircraft tax concessions.

Farooq Sattar, the chairman of the privatization committee, underlined the importance of giving PIA workers at least five years of job security. Employee protection will continue to be a top priority and will be resolved prior to bidding, the Privatization Commission promised.

PIA’s liabilities totaling Rs650 billion have already been assumed by the government, and an additional Rs45 billion in outstanding debts must be paid before the privatization process can begin. As of the now, PIA has assets around Rs155 billion and liabilities worth Rs200 billion. It will be necessary for the new buyer to expand the fleet by 15 to 20 aircraft.

Additionally, the Privatization Committee has sought a timeline for the privatization of Faisalabad, Gujranwala, and Islamabad Electric Supply Companies. Officials stated that after the appointment of a financial advisor, the privatization process for these companies will accelerate.