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

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1 year ago

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  • 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.”

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Dar chairs the CCOP meeting; Blue World’s bid offer of Rs.10 billion is rejected.

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15 hours ago

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The Foreign Minister/Deputy Prime Minister chaired the Cabinet Committee on Privatization meeting.

Other committee members who attended the conference included the Federal Secretaries of several Divisions, the Ministers of Finance and Revenue, Industry and Food, Commerce, Power, and Privatization.

The CCOP took the PC Board’s recommendation into consideration and suggested that Blue World’s bid of 10 billion rupees for the sale of 60% of PIACL’s shares be rejected. The bid was rejected by the CCOP, who chose to follow the PC Board’s advice.

The government’s determination to sell out PIACL through government-to-government or privatization was reaffirmed by the CCOP.

The CCOP was pleased with the Aviation Division’s evaluation of PIACL’s sound financial standing.

Additionally, the CCOP established a committee, chaired by the Minister of State for Finance, to assess potential transaction possibilities for the privatization of the Roosevelt Hotel and the appropriate modes of adoption in light of existing legal rules.

Prior to its subsequent meeting, the CCOP also ordered that all difficulties be resolved and an agreement for the selling of services to an international hotel be concluded.

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The KSE-100 Index has surged by 790 points, resulting in an all-time peak for the stock exchange.

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The benchmark KSE-100 Index increased by 790 points, marking a new all-time high for the Pakistan Stock Exchange (PSX) at 94,982 points.

The record-breaking performance underscores a surge of optimism and investor confidence in the stock market.

As investors responded to favorable economic signals, the market experienced a significant increase of over 500 points in early trading. Later, the KSE-100 Index reached another record level of 94,786 points after adding 594 points to its upward trajectory.

This positive development comes as the State Bank of Pakistan’s (SBP) foreign exchange reserves saw an increase of $84 million, reaching $11.26 billion during the week ending November 8, according to data released by the central bank on Thursday.

This represents an increase of 0.75% from the previous week. In addition, the nation’s total liquid foreign reserves experienced a modest increase, increasing by $33.7 million or 0.21% week-on-week to $15.97 billion.

In contrast, commercial banks’ reserves experienced a decline of $50.3 million or 1.06%, ultimately settling at $4.71 billion.

Furthermore, the economic team of Pakistan has expressed confidence in the discussions with the International Monetary Fund (IMF). Minister of State for Finance Ali Pervaiz Malik, in an exclusive conversation with Samaa TV, claimed talks were moving in a positive direction.

Highlighting improvements in Pakistan’s economic conditions, Malik noted substantial progress over the past six months to a year. He emphasized that Pakistan’s current economic situation has seen significant enhancement, with a reduced current account deficit of only $100 million in the first quarter, a reflection of the government’s strategy to increase remittances and boost exports.

Malik shared that discussions with the IMF are primarily focused on external financing, and while there have been speculations about a potential mini-budget or an increase in the petroleum levy, he clarified that these are currently premature considerations.

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Positive IMF negotiations propel KSE-100 Index above 94,000 points

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2 days ago

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As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.

The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.

Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.

Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.

In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).

The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.

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