Pakistan is gearing up to address its economic challenges by engaging in discussions with the International Monetary Fund (IMF) regarding an Extended Fund Facility (EFF) in Washington next month, according to Finance Minister Muhammad Aurangzeb. With the country facing a severe economic crisis, the current $3 billion standby arrangement with the IMF is set to expire on April 11. However, a recent staff-level agreement between Pakistan and the IMF regarding the disbursement of the final $1.1 billion tranche provides some respite.
During a media briefing, Minister Aurangzeb expressed Pakistan’s keen interest in securing an Extended Fund Facility with the IMF, although the specifics regarding the amount are yet to be determined. He highlighted the positive response from the IMF and emphasized the supportive role of the United States in this matter. Prime Minister Shehbaz Sharif, amidst allegations of electoral rigging, has directed his finance team to pursue an extended fund facility, acknowledging its inevitability.
The IMF has indicated its willingness to assist Pakistan in formulating a new economic program if requested. However, the previous IMF rescue package necessitated significant economic reforms, including budget revisions, interest rate hikes, and tax increases, which led to challenges such as high inflation, currency depreciation, and economic contraction.
To bolster the economy, Finance Minister Aurangzeb has proposed the issuance of Panda Bonds worth up to $300 million, targeting Chinese investors. This move aims to diversify funding sources and tap into the Chinese bond market, which is one of the largest globally. Aurangzeb highlighted the importance of this initiative, considering Pakistan’s previous bond issuances in dollars and euros. He mentioned that the initial Panda bond sale would be followed by further issuances, leveraging Pakistan’s strong cash balances to meet debt obligations without exerting pressure on the currency.
While discussing the potential impact on the Pakistani rupee, Aurangzeb expressed confidence in its stability, foreseeing a range-bound trajectory. He acknowledged the uncertainty surrounding oil prices due to geopolitical tensions but emphasized the government’s preparedness to navigate such challenges. As Pakistan’s credit rating improves, Aurangzeb envisions accessing the international bond market, leveraging the country’s strategic partnership with China.
