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IMF approves RFI of $1.385bn to cover Pakistan’s external financing

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IMF

ISLAMABAD: The IMF has approved disbursement of $1.386 billion to Pakistan under the Rapid Financing Instrument (RFI) to address the economic impact of the COVID-19 shock, due to heightened fiscal and external financing needs.

IMF also noted ‘Expeditious donor support is needed to close the remaining balance of payments gap and ease the adjustment burden’. We in our report titled ‘COVID-19 – An event with unprecedented parallel’ dated April 4, 2020 had highlighted that IMF and others will be required to help Pakistan again, otherwise a Balance of Payment issue was likely in the next 3-12 months.

The other major support that Pakistan is expected to receive is debt restructuring announced by G20, where the group has suspended debt repayments (including interest) of 77 poorest countries (including Pakistan), which were due to be paid between May 1 and Dec 1, 2020 to official bilateral creditors. The full definition of what is included in the definition of ‘official bilateral’ creditors is yet to be decided.

All debt service falling due in this period will be packaged into a new loan on which the payments will not start until June 2022. Then it will be paid over the subsequent three years. In the meantime, the G20 countries will consult with the IMF and World Bank on whether the suspension period should be extended to Jun-2021 or not, depending on how the COVID related challenges are shaping up by then.

According to Topline research report, the estimate Pakistan’s debt repayments (including interest) during the said period to be around $11 billion, of which we expect Pakistan to get relief on $7-10 billion.

The World Bank and the Asian Development Bank (ADB) are also working on providing financing to Pakistan during this period of crisis.

The World Bank recently approved $200 million pandemics responsive fund facility for Pakistan, which was part of a $14 billion global fund facility for coping with the pandemic. The Bank is also working on repurposing around $600 million to $2 billion, to make available to support recovery initiatives. The ADB is also working on the same, and may provide up to $1 billion.

On the other hand, the Current Account is likely to remain manageable due to over 50 percent decline in international oil prices (oil accounts for 26% of total import bill), however most of its benefit will be nullified by decline in exports and remittances.

Overall, Syed Atif Zafar of Topline brokerage house believes these measures and flows will stabilize Pakistan’s Balance of Payment in the near term, where by Dec-2020 we estimate SBP reserves to rise to around $12-14 billion from presently $11.0 billion.

The analyst said these developments to provide strength to Pak rupee in the near term, where we keep our June 2020 estimate intact at 168-170.

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