The International Monetary Fund (IMF) has urged all key bilateral creditors to maintain their exposure to Pakistan in line with Extended Fund Facility (EFF) program commitments, as the country’s gross external financing needs have been projected at $35.068 billion for 2022-23 i.e. 10.1 percent of the GDP.
The IMF in its report” 2021 article IV consultation, sixth review under the extended arrangement under the extended fund facility, and requests for waivers of applicability and nonobservance of performance criteria and rephasing of access” has projected Pakistan gross external financing needs at $30.417 billion for 2021-22 i.e. 9.5 percent of GDP and $41.882 billion for 2023-24 i.e. 11.2 percent of GDP.
The report noted that financing commitments from bilateral and multilateral partners, and the temporary suspension of debt service to official bilateral creditors granted under the G20 DSSI initiative, will help cover public gross external financing needs in the fiscal year 2022 and until the end of the program in October 2022. On aggregate, key bilateral creditors have increased their exposure to Pakistan in recent months, and one creditor reinstating its original exposure and all others maintaining theirs.
The DSSI covers about $3.8 billion falling due over May 2020–Dec 2021, of which about US$1.1 billion is related to the second round of DSSI covering the January–June 2021 debt service, and US$1.0 billion to the third DSSI round covering July–December 2021.
The fiscal year 2022 official financing includes support from China ($6.6 billion, including the rollover of US$4 billion SAFE deposits), UAE (rollover of $2 billion), World Bank (US$2.4 billion), Asian Development Bank ($1.2 billion), Islamic Development Bank ($1 billion), and other bilateral support under the G20 initiative ($1 billion).
The Pakistani authorities have informed that the current projections suggest that with the policies outlined in this MEFP, the gross external financing needs for the fiscal year 2022 will amount to $26 billion, of which about $10 billion is amortization to multilateral and bilateral official and commercial creditors.
To close this gap, the government has secured financing commitments from bilateral and multilateral partners: China $6.6 billion, UAE $2 billion, the World Bank US$2 billion, the Asia Development Bank US$1.5 billion, and the Islamic Development Bank $1 billion. Crucially, key bilateral creditors have maintained their exposure to Pakistan in line with program financing commitments.
In addition, the government continues to benefit from the temporary suspension of debt service to official bilateral creditors provided under the G-20 DSSI initiative, which will cover US$1.0 billion falling due during July-December 2021 (third round of DSSI).
Pakistan’s capacity to repay the IMF is adequate subject to program implementation. The IMF’s exposure reaches SDR 5,560.34 million (or 274 percent of quota and about 40 percent of gross reserves) with this review. With full purchases, it will peak at 344 percent of quota in 2022. As assessed before, elevated risks—notably from delayed adoptions of reforms, high public debt, gross financing needs, and low reserves—could jeopardize program objectives, and erode repayment capacity and debt sustainability.
Uncertainty about global economic and financial conditions amid the COVID-19 pandemic adds to those risks. The strong framework for program monitoring (including continued quarterly reviews and updated program conditionality, focused technical assistance in support of program implementation, and adequate execution of existing financing commitments are essential mitigation strategies.
