ISLAMABAD — Pakistan is struggling to finalize a $7 billion bailout deal with the International Monetary Fund as it falls short in key specifics, observers said.
Islamabad signed a loan agreement with the Washington-based fund at the staff level in the second week of July. Deals must get an official nod from the IMF’s executive board, but the agreement is not on the agenda of the board’s next meeting on Friday.
Pakistani Finance Minister Muhammad Aurangzeb at first said the agreement would be finalized in August, and then said September. In his latest comments on the issue, he said the loan agreement, the biggest in recent memory, was in its “advanced stages.”
Last year, Pakistan struck a $3 billion loan with the IMF, which got board approval just two weeks later — one of two dozen bailouts that the perennially crisis-hit nation has struck over the past six decades.
The apparent delay for the latest agreement has raised eyebrows and stoked fears about the future of the deal, seen as crucial for keeping the wobbly economy afloat.
“The board delay is beyond comprehension,” said Muzzammil Aslam, the top financial adviser for Khyber Pakhtunkhwa province, which was directly involved in the negotiations.
The IMF did not respond to written questions sent by Nikkei Asia about the loan.
A former government official involved in past IMF loan talks warned that the international lender may demand more stringent conditions before signing off this time.
“The larger the gap between staff-level agreement and board approval by IMF, the more stringent conditions Pakistan will have to fulfill to get the loan,” the official told Nikkei on condition of anonymity. “This delay will invariably hurt the performance of Pakistan’s already turbulent economy.”
Pakistani Finance Minister Muhammad Aurangzeb has said the new $7 billion IMF loan agreement is in its “advanced stages.” © ReutersObservers and an official involved in the recent negotiations pointed to multiple hurdles that have yet to be cleared, with the biggest being a failure to roll over $12 billion in debt and win another $2 billion in loans from creditor countries, including top investor China.
“We are struggling to get $2 billion in additional loans, which is the main roadblock for the deal,” said the official involved in the recent talks.
In July, Pakistan asked China to push back repayment dates for some $15 billion in debts owed to the power sector, but the official said there has been no response so far from Beijing.
“The inability [of Pakistan] to convince Chinese [power producers] to provide relief in debt repayments has emerged as a significant challenge for Pakistan,” said Aqdas Afzal, an associate professor of social development and policy at Habib University in Karachi.
Pakistan has also tapped the governments of Saudi Arabia and the United Arab Emirates for its required $2 billion in additional loans.
“Pakistan is facing challenges in securing additional financing commitments from allied countries, as it has largely exhausted its funding sources after years of relying on debt rollovers,” said Naafey Sardar, assistant professor of economics at the U.S.-based St. Olaf College. “Given the ongoing extensions by friendly nations, the prospect of new loans seems unlikely.”
The IMF required Pakistan to scrap subsidies. However, Punjab province this summer rolled out a $160 million subsidy for electricity consumers to calm a backlash over high power bills as the region broiled under a severe heat wave.
“The Punjab government’s electricity subsidy plan seems to be one of the key sticking points for the IMF,” Sardar said.
Pakistan also fell about $400 million short of a required $5.6 billion in tax collection for July and August. Resistance among retailers to paying more tax has been cited as a key reason.
Islamabad is now trying to borrow money from commercial banks in the Persian Gulf region at higher interest rates.
“The discussions with multiple Gulf banks are underway to secure the required loans,” the official involved in the recent talks told Nikkei.
Still, some experts said the deal is likely to win approval, although Pakistan may be forced to agree to even tighter conditions.
“There may be some delay, but Pakistan will be able to get the [loan] from the IMF that has already been agreed,” said Habib University’s Afzal.
source : asia.nikkei