By Ariba Shahid
(Reuters) -The International Monetary Fund (IMF) has reached a staff-level pact with Pakistan on a $3 billion stand-by arrangement, the lender said, a decision long awaited by the South Asian nation which is teetering on the brink of default.
The deal, subject to approval by the IMF board in July, comes after an eight-month delay and offers some respite to Pakistan, which is battling an acute balance of payments crisis and falling foreign exchange reserves.
Following are some reactions to the deal:
MURTAZA SYED, FORMER DEPUTY GOVERNOR OF THE STATE BANK OF PAKISTAN
“The SBA (stand-by arrangement) provides Pakistan with much needed short-term cover, in the lead up to and immediate aftermath of the upcoming elections. As long as Pakistan remains on track under the SBA’s reviews, it should catalyze additional financing from bilateral and other multilateral sources.
“In this way, we should be able to meet the external debt repayments coming due in the next few months. It is not the end of our relationship with the IMF though, as the SBA is a short-term bridging operation. The new government will almost definitely need to negotiate another long-term EFF programme with the IMF after the elections, as our balance of payments and external debt repayment problems are of a more protracted nature.
GARETH LEATHER, SENIOR ASIA ECONOMIST AT CAPITAL ECONOMICS, LONDON
“The agreement of a loan deal between Pakistan and the IMF should put the economy back on a more secure footing and limit the biggest downside risks.
“However, past experience suggests that the government will struggle to stick to the tough spending promises it has agreed to. There is a strong risk that Pakistan reneges on the deal once the immediate crisis has passed.
“One obvious trigger is the upcoming general election, due to be held no later than November. Even if Prime Minister Shehbaz Sharif is committed to a deal, he could be out of office before the end of the year and replaced by someone less committed to the agreement.”
ABDUL ALEEM, CHIEF EXECUTIVE AND GENERAL SECRETARY AT OVERSEAS INVESTORS CHAMBER OF COMMERCE AND INDUSTRIES, KARACHI
“We see it as a significant supportive move which was long awaited to remove the perpetual uncertainty in the economic landscape of the country.
“While the State Bank had managed the delicate situation remarkably well but certainly the hard measures dented the confidence of investors and reputation of the country as a destination for new foreign direct investment.”
SAKIB SHERANI, FOUNDER AND CHIEF EXECUTIVE AT MACRO ECONOMIC INSIGHTS, ISLAMABAD
“Its clear the EFF has ended unsuccessfully. The SBA gives a temporary lifeline to this government and the new one post-elections. The successor government will have to negotiate a fresh, longer term arrangement with the Fund”
SHAHBAZ ASHRAF, CHIEF INVESTMENT OFFICER AT INVESTMENT COMPANY FRIM VENTURES, KARACHI
“Capital market investors will celebrate this development, currency market should stabilise. However, interest rates are expected to remain higher for longer. Eurobonds may rally.
“Few more measures like lifting import restrictions and higher electricity tariff may be seen in the near term. Circular debt in the power sector might remain flat, if not lower led by this development”
MAHA RAHMAN, ECONOMIST AND FORMER DIRECTOR POLICY AT MAHBUB UL HAQ RESEARCH CENTER, LAHORE
“Much needed relief that we have been hoping for for a year. I hope we can utilise this space to make prudent decisions so that we are not at the edge of our seats, like the previous year, ever again.
“IMF’s agreement in particular refers to energy sector reforms. The team will now steer the government to make decisions that will usher in more fiscal prudence.”
ZAFAR MASUD, CEO AT BANK OF PUNJAB, LAHORE
“It’s important to see how much of the 3 billion is being disbursed upfront and what conditionalities are attached to the remaining tranches. Our target shall be that the next IMF programme should be the last one and it would be a great opportunity to correct our fiscal account once and for all.”
MUSTAFA PASHA, CHIEF INVESTMENT OFFICER AT LAKSON INVESTMENTS, LONDON
“The 3 billion SBA is a much better outcome for Pakistan (as opposed to the 9th review) as it means the country actively stays in an IMF programme till March 2024 during which a transition to a new government is expected and which would have been a period of uncertainty.
“This increases the probability of funding from bilateral/multilateral partners materialising in the quantum and timeline the country needs in order to meet its dollar obligations.
SHAHID HABIB, CEO AT INVESTMENT COMPANY ARIF HABIB LTD, KARACHI
“The new 9-month SBA is a major positive and will significantly reduce risks and uncertainties and serve as a source of comfort to investors and lenders. It will also allow access to funding from other multilateral and bilateral partners which is essential given Pakistan has about USD 9.0 billion of debt repayments including USD 4 billion of sovereign rollovers until December.”
MUSADAQ ZULQARNAIN, CHAIRMAN AT INTERLOOP HOLDINGS, ONE OF THE LARGEST TEXTILE MANUFACTURERS IN PAKISTAN
“The 9 month SBA for $3 billion will bring some badly needed relief in the short term. Although the budget has created further difficulties for the corporate sector and the cost of doing business has gone out of the roof, the biggest problem has been the uncertainty and volatility in the market.
“This agreement will at least provide some stability for next few months.”
MOHAMMED SOHAIL, CEO OF BROKERAGE FIRM TOPLINE SECURITIES, KARACHI
“This new programme is far better than our expectations. There were a lot of uncertainties on what will happen after June 2023 as there will be a new government coming to power. Now, this funding of 3 billion dollars and for 9 months will definitely help restore some investor confidence.
“The newly elected government, likely by Nov/Dec, will have some time to evaluate the economic situation and decide on the way forward (bigger IMF loan with or without debt restructuring/reprofiling).”
AHFAZ MUSTAFA, CEO OF BROKERAGE FIRM ISMAIL IQBAL SECURITIES, KARACHI
“It also means that at this point no local/foreign restructuring of debt is on the cards. We have to wait for more details to come and see if any prior actions have to be fulfilled before the board meeting, but these are absolutely steps in the right direction for the economy.”
SAJID AMIN JAVED, DEPUTY EXECUTIVE DIRECTOR, SUSTAINABLE DEVELOPMENT POLICY INSTITUTE, ISLAMABAD
“The SBA will come with even more tough conditions of sharp energy price hikes, completely market driven exchange rate, and others. But, Pakistan has no other way to come out of this crisis. We need IMF backing up.
“Things would have been much better if successive governments would have invested in completing the IMF programme. It will have avoided all the uncertainty, panic in market and pressure on currency.”
(Reporting by Ariba Shahid, compiled by Shilpa Jamkhandikar; Editing by Raju Gopalakrishnan)
