Pakistan Fulfils Another IMF Requirement for $1 Billion Loan

The federal Cabinet has agreed to make the details of sovereign guarantees public to meet another condition of the International Monetary Fund (IMF), reported Express Tribune.

Following the meeting of the Cabinet headed by Prime Minister Imran Khan, the Minister for Information, Fawad Chaudhry, told reporters that the declaration of contingent liabilities (sovereign guarantees) will be tabled before the National Assembly as part of the Supplementary Finance Bill, 2021.

The development comes after the Cabinet was informed that the Ministry of Finance could soon issue another Rs. 493 billion in guarantees over the remainder of the current fiscal year, which will bring the pending stock to a new high of Rs. 3.2 trillion after the adjustment of some repayments.

The members of the Cabinet had reportedly expressed their concerns for the SBP (Amendment) Bill during the previous meeting on 30 December 2021 in the presence of the premier. Some members were concerned that the proposed legislation would create a state within a state to result in the loss of the country’s economic autonomy. Additionally, reservations about the government’s mounting borrowing costs were highlighted.

The Minister for Finance, Shaukat Tarin, debunked such fears and false rumors and highlighted that the previous regimes had kept interfering in the operations of the central bank and had frequently resorted to wild borrowings from the SBP, which involved the unfettered printing of money.

He stated that the incumbent government’s agenda involves empowering institutions by increasing their independence.

The Ministry of Finance said that the IMF had directed the government to compile the list of guarantees it wishes to issue during the current fiscal year, together with the mini-budget, and present it to the National Assembly.

The ministry’s contingent liabilities, also known as ‘sovereign guarantees’, are a financial obligation that may exist or be created if one or more events occur. The budgetary commitments of the previous governments had been deferred either by delayed payments or the acceptance of commercial loans backed by governmental assurances.

Some of these guarantees are required by international law for compliance in cases such as commercial financing for key strategic defense projects. Notably, the outstanding contingent liabilities, which were Rs. 1.236 trillion at the conclusion of the previous government’s tenure, had already quadrupled to Rs. 2.472 trillion by September 2021 — a little over three years into the current government’s tenure.

Apart from the abovementioned pending contingent liabilities, the government is scheduled to offer sovereign guarantees for Rs. 28 billion for the Kharian-Sialkot expressway, Rs. 5 billion for the Roosevelt Hotel in New York, Rs. 3 billion for the PSM, Rs. 4 billion for the NTDC, and Rs. 20 billion for the Jamshoro and Lakhra power plants.

Sovereign guarantees worth Rs. 17 billion are being granted in favor of the Pakistan Investment Authority (PIA), Rs. 50 billion to the Water and Power Development Authority (WAPDA), Rs. 40 billion to the Kamyab Pakistan Program, and Rs. 10 billion to the Kamyab Jawan Program.

Besides the Rs. 3.2 trillion in sovereign guarantees, there is another Rs. 718 billion in quasi-fiscal expenditures that the Central Bank and commercial banks are funding. These guarantees are granted against the Trading Corporation of Pakistan, the Pakistan Agriculture Storage and Services Corporation, and the commodities financing operations of the provincial governments.