Pakistan clears key hurdle for IMF funding as UAE pledges $1 bn - What's next?
The United Arab Emirates has confirmed financial support of $1 billion to Pakistan, removing a key hurdle to securing a much-awaited bailout tranche from the International Monetary Fund.
PremiumThe United Arab Emirates confirmed financial support of $1 billion to Pakistan on Friday, removing yet another hurdle before the cash-strapped nation can secure funds from the IMF. The international body had previously stipulated that Islamabad should secure $3 billion from other countries for the revival of its USD 6.5 billion bailout package.
“UAE authorities have confirmed to IMF for their bilateral support of US $ One billion to Pakistan. State Bank of Pakistan is now engaged for needful documentation for taking the said deposit from UAE authorities," Finance Minister Ishaq Dar tweeted.
The development also comes mere days after Saudi Arabia approved funding of an additional USD 2 billion in deposits. longtime ally China has also come to Pakistan's aid, with the country's central bank receiving a third and final disbursement of $300 million from the refinancing by the Industrial and Commercial Bank.
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Having secured the necessary financial support, Pakistan is now set to obtain a tranche of $1.1 billion that is crucial for the country to resolve an acute balance of payments crisis. The funds - to be released after a staff-level agreement is reached - had originally been due for disbursement in November last year.
The IMF recently lowered its forecast for Pakistan’s economic growth rate from 2% to a mere 0.5% for the current fiscal year amid high inflation and a growing unemployment rate. The country continues to tether on the verge of default with just over $4 billion in reserves.
Pakistan has complied with a series of actions demande by the IMF - from reversing subsidies in its power, export and farming sectors to hikes in the prices of energy and fuel, and a permanent power surcharge. These steps included jacking up its key policy rate to an all-time high of 21%, a market-based exchange rate, arranging for the external financing, and raising more than $613 million in new taxes.
A final issue to be resolved is a fuel pricing scheme meant to bring relief to Pakistan's lower middle class and poor from crippling inflation. The IMF has asked how it will be funded.
The IMF programme will disburse another tranche of $1.4 billion to Pakistan before it concludes in June. Funds from the lender will also unlock other bilateral and multilateral financing for the cash-strapped country.
(With inputs from agencies)
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