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Pakistan Strategy_IMF yet again to the rescue, (AKD Daily, Aug 30, 2022)

AKD Daily

Pakistan Strategy: IMF yet again to the rescue                                                               

· The wait is finally over. The IMF Executive Board has approved the resumption of the Extended Fund Facility to Pakistan, paving way for an immediate disbursement of US$1.2bn tranche, taking cumulative program disbursements to US$3.9bn thus far under the program (or 50.0% of the total program). Conversely, the cumulative disbursement during CY22 will reach US$2.2bn once the latest tranche is disbursed. 

· At the same time, the duration of the program has also been extended by 8 months and approx. US$1.0bn to US$6.5bn, approving waivers of nonobservance of performance criteria. To recall, at the inception, the size of the program was close to US$6bn, however, owing to country’s burgeoning financing needs the length and size of program was revised.

· Tax reforms, along with power and gas sector reforms, continuation of market driven exchange rate and rolling back of unpopular subsidy programs were the key factors in revival of the program. The 7th review was scheduled in Mar’22 initially but got delayed due to noncompliance of key fiscal targets.

· After finally securing endorsement from the IMF, the country will be able to mobilize further funding from Bilateral, Multi-lateral and other sources which will help shore up FX reserves. The currency which has continued to remain volatile throughout CY22, has yet again come under pressure recently, losing 3.6% in value since 16th Aug’22. The latest IMF tranche will likely instill confidence in the market and we may see PkR gaining grounds on US$ in the short term. 

· The official press-release also gave insight to select economic projections which were broadly in line with SBP’s own estimates which the central bank shared after the latest MPS. To this end, the fund targets country’s primary and fiscal deficit for FY23 to remain intact at 0.2%/-4.7% of GDP, while the headline GDP growth is estimated around 3.5%. Inflation, meanwhile, is only projected at 19.9%. In our view these forecasts do not incorporate the impact of recent flooding which will materially impact the projections.

AKD Research