With the IMF bailout secured, what will happen to Pakistan’s external account?

In a bid to bolster its foreign exchange reserves and safeguard the national economy from external shocks, Pakistan has pledged to increase its reserves by $7.65 billion, reaching $11.7 billion by the end of the financial year 2024. Finance Minister Ishaq Dar and State Bank of Pakistan Governor Jameel Ahmed signed a Letter of Intent with the International Monetary Fund (IMF), assuring them of their commitment.

The Desired Financing:

To meet this target, Pakistan plans to secure loans from multilateral and bilateral creditors, with projected disbursements of $15.01 billion during the current financial year. 

Talking to a private news channel, Finance Minister Ishaq Dar stated that Pakistan is expected to raise $5.6 billion in the month of July alone. This, according to him entails $3 billion payments from Saudi Arabia ($2 billion) and UAE($1 billion) which were committed to the fund. Apart from this, these include the payments from Islamic Development Bank ($1 billion) World Bank ($450 million), Asian Infrastructure and Investment Bank ($250 million), and various Geneva pledges that amount to more than $350 million.

He said that adding this to the current pool of payments that are in the central bank’s reserve, Pakistan expects to shore up its total reserves to around $15 billion.

“We are comfortable till December”, says Ishaq Dar responding to a question about the economic situation for the coming government.

Furthermore, as per the letter of intent, Pakistan intends to negotiate with bilateral partners, including China, Saudi Arabia, and the UAE, to roll over existing deposits. The IMF executive board is scheduled to meet on July 12, 2023, to consider Pakistan’s request for a $3 billion bailout package and a $1 billion tranche release.

The finance minister is also hopeful to maintain the surplus or breakeven position in the current account, which the government has been managing to pull off in the last 3 months owing to bans on imports.

The Payments:

Before the Standby arrangement with the IMF was signed Pakistan was largely expected to not meet its debt obligations. However, with the $3 billion in the next 9 months coupled with the additional financing expected with that, Pakistan now sits in a fairly better position to at least pay back its debts.

In this respect, according to the latest report by Moody’s Pakistan is expected to pay back at least $25 billion in the coming year. Of these $25 billion, short term debt constitutes around $15 billion. These short-term debt repayments include $4 billion Chinese SAFE deposits, $3 billion Saudi deposits and $2 billion UAE deposits.

Talking to Profit before the IMF SBA, senior economic journalist Khurram Hussain, stated that Pakistan’s total debt servicing needs up until December amount to around $4.7 billion, provided the country secures its due rollovers. He mentioned that in such circumstances, Pakistan needed $4-5 billion in a bailout.

If the finance ministry’s calculations are to be believed, Pakistan has completely averted the danger of default in the short-run, or in the current government’s stint in office. However, the same Moody’s reports suggest that the total due payments, barring any new loans that the government takes, up until June 2026, amount up to at least $75 billion dollars. The figure is both alarming and worrisome, not only for the political stakeholders but the people of the country as well. 

Putting that in perspective, the breather that Pakistan got from the IMF is to be rather short lived and decisive for the upcoming years, if any structural reforms are to be made.