EUR 8.55 For Business Accounts Only

Pakistan’s Another IMF program

• The executive board of International Monetary Fund (IMF) have approved a 39-month Extended Fund Facility (EFF) for Pakistan amounting to $6bn (SDR 4,268mn or 210% of its Pakistan quota).
• Along with the approval, the IMF has also decided to release an upfront amount of $1bn in the month of July-2019 well below the country’s request of $2.0-2.5bn, but higher than media reports of $500mn to smoothen its foreign outflows.
• IMF in its press release has also stated that the remaining amount will be disbursed evenly during the program subject to 4  quarterly and 4 semi annual reviews. Historically the IMF has followed quarterly review system.
• The IMF program aims to bring Pakistan’s economy back on sustainable and balance growth. We expect this may take at-least 1-2 years. 
• The approval, according to IMF will unlock from Pakistan’s international partners around $38bn over the program period which is broadly in line with gross financing requirement of Pakistan, we believe.
• The GoP has already taken tough measures (prior actions) to secure the stated IMF program. The actions include (1) significant rupee depreciation with implementation of market based exchange rate system, (2) hike in electricity & gas prices to reduce subsidy and circular debt, (3) Policy rate hike to manage inflation and (4) increasing tax revenues measures through Budget 2019-2020.
• As of yet, Letter of Intent (LOI) has not been issued by IMF. Post issuance of LOI, more specific quantitative targets, structural benchmarks and indicative targets would provide more insight into the agreed terms between IMF and Pakistan.
• Market Outlook: Although IMF loan approval will partially restore confidence on macro-economic stability, however sluggish economic growth, further monetary tightening and aggressive tax revenue targets in the medium term may keep investors participation at bay.
• We continue our liking for select Banks, E&Ps, cash-rich and circular debt resolution beneficiaries companies which will gain from the higher interest rates, weak PKR, and structural reforms in energy sector.