Pakistan has activated its Plan B, taking the initiative to request additional deposits of $3 billion from its bilateral partners. This request serves as a precautionary measure in case the International Monetary Fund (IMF) fails to reach an agreement with Pakistan by the end of June 2023.
Uncertainty Surrounding IMF Program Completion
The completion of the 9th Review under the $6.5 billion Extended Fund Facility (EFF) program, scheduled to expire on June 30, 2023, remains uncertain. Both the IMF and Pakistan have expressed their commitment to engagement, but the looming crisis on Pakistan’s external accounts has prompted the Ministry of Finance to explore all available options for bridge financing.
Top officials have confirmed that they are actively considering securing bridge financing of $3-$4 billion from bilateral friends. The objective is to mitigate the risk of default in the coming months, ensuring stability until the end of October or November 2023. However, friendly countries such as Saudi Arabia and the United Arab Emirates (UAE) have tied their additional deposits of $2 billion and $1 billion, respectively, to the signing of a Staff Level Agreement (SLA) and the revival of the IMF program.
Optimistic Intentions and Hopes of Preventing Default
Despite the challenges, Pakistani officials remain hopeful and express their intent to request additional deposits of $3 billion from bilateral partners. If successful, this arrangement would alleviate fears of default, enabling Islamabad to navigate the next few months with greater confidence.
Finance Minister Ishaq Dar has shared positive developments regarding China’s support. China has granted a rollover of $1 billion and refinancing of a $300 million commercial loan, ensuring that $2.3 billion will not deplete from foreign exchange reserves by the end of June 2023. Additionally, agreements are in progress for the repayment of $1 billion to China Development Bank and $300 million to the Bank of China, with refinancing arrangements being worked out.
Commitment to Maintaining Foreign Exchange Reserves
Pakistan aims to renew the rollover of two deposits worth $500 million each as part of the SAFE deposits within the ongoing month. The country is committed to timely repayments and seeks to maintain the foreign exchange reserves held by the State Bank of Pakistan (SBP) until June 30, 2023, without experiencing a significant reduction.
Conclusion: Navigating the Potential IMF Crisis
In summary, Pakistan’s Plan B involves seeking additional deposits from bilateral partners as a precautionary measure to address the potential IMF crisis. With ongoing discussions and optimistic intentions, Pakistan aims to secure bridge financing and avoid default while also benefiting from rollovers and refinancing agreements with China. The country remains committed to maintaining its foreign exchange reserves and fulfilling its repayment obligations.