ISLAMABAD (CNA) – The United Arab Emirates (UAE) has confirmed financial support of USD1 billion to Pakistan, the South Asian nation’s finance minister said on Friday removing a key hurdle to securing a much-awaited bailout tranche from the International Monetary Fund (IMF).
The commitment is one of the lender’s last requirements before approving a staff-level pact to release a tranche of USD1.1 billion, delayed for months, that is crucial for Pakistan to resolve an acute balance of payments crisis.
“The State Bank of Pakistan is now engaged for needful documentation for taking the said deposit from UAE authorities,” Finance Minister Ishaq Dar said on Twitter, referring to the central bank.
The pledge makes the UAE the third country, after Saudi Arabia and longtime ally China, to come to Pakistan’s assistance, as external financing is needed to fully fund the balance of payments gap for the fiscal year that ends in June.
On Thursday, the IMF’s managing director, Kristalina Georgieva, said the fund was also in talks with nations friendly to Pakistan to secure financial assurances vital for the programme.
Last week, Saudi Arabia also told the IMF it would provide financing of USD2 billion to Pakistan.
Pakistan’s foreign exchange reserves have fallen to cover barely a month of imports after the IMF funding stalled in November, hit by snags over fiscal policy adjustments after officials of the lender visited Islamabad in February for talks.
They formed part of a ninth review exercise on a bailout package of USD6.5 billion agreed in 2019 whose resumption is critical for Pakistan to avoid risking default on external payment obligations.
Pakistan had to complete actions demanded by the IMF, such as reversing subsidies in its power, export and farming sectors, hikes in the prices of energy and fuel, and a permanent power surcharge, among other measures. These steps included jacking up its key policy rate to an all-time high of 21 per cent, a market-based exchange rate, arranging for the external financing, and raising more than PKR170 billion (USD613 million) in new taxes.
The fiscal adjustments have already fuelled Pakistan’s highest inflation ever, which climbed in March to more than 35 per cent on the year.
A final issue to be resolved is a fuel pricing scheme meant to bring relief to Pakistan’s lower middle class and poor from crippling inflation. The IMF has asked how it will be funded.
The IMF programme will disburse another tranche of USD1.4 billion to Pakistan before it concludes in June.
Funds from the lender will also unlock other bilateral and multilateral financing for the cash-strapped country.
Neighbouring China has rolled over USD2 billion and refinanced another USD1.3 billion in recent weeks.
Pakistan’s central bank is set to receive a third and final disbursement of USD300 million from the refinancing by the Industrial and Commercial Bank of China, Dar added.
The government is pursuing a contractionary fiscal policy, with the primary balance in surplus so far compared to a deficit last year, he added.
